Free Ride for Big Online Retailers Should End

by Marci Hughes, Assistant Director
Friends of Art Bookshop

As a small, independent bookstore, The Friends of Art Bookshop as well as hundreds of other independent retailers would like a level playing field when it comes to competing with massive online retailers. 

Currently, online retailers like Amazon.com and Overstock.com are not collecting sales tax for items sold to Indiana residents, giving them a large competitive advantage over retailers that do.  Existing sales tax laws in the 45 states that collect sales tax stipulate that when a company has a physical presence in the state (called “nexus”)—through a retail store, warehouse, office, or sales agent—the company must collect and remit sales tax on purchases made by customers in those states. Dodging state tax laws creates an uneven playing field because many in-state customers will take advantage of tax-free, online shopping.

The ‘free ride’ that online retailers are getting crushes brick-and-mortar stores, and further starves state governments that are already experiencing the worst financial crunch in decades.  A University of Tennessee study said that total state and local sales tax revenue losses from e-commerce sales exceeded $170 million in Indiana in 2010 alone. This figure will grow to $217 million in 2012. The online retailer’s gain is our community’s loss – of schools, of repairs, of new jobs and thriving main streets that make cities unique.

The American Booksellers Association (ABA) is speaking out on this issue, calling it the Tax Fairness Act.  They firmly believe it is the responsibility of state leaders to uniformly and fairly enforce sales tax laws by requiring all retailers—whether they operate online, in brick-and-mortar stores, or a combination of both—to fulfill their obligation to collect sales tax.  This is neither a new tax nor special treatment for independent bookstores; it is an equitable and uniform enforcement of existing state tax laws.

Some state governments have acted on this issue.  In 2008, the New York State Legislature passed the Internet Sales Tax provision. This requires out-of-state retailers such as Amazon.com to comply with New York State sales tax laws and collect and remit sales tax on sales to state residents. This constitutes not only a significant victory for independent retailers in New York state, who are now on more even terms with online retailers, but for New York state itself, who recouped $46 million in  the first six months after the provision became law.  Moreover, the passage of the Internet Sales Tax provision establishes a precedent for other states to follow. 

In October 2010, Texas issued a $269 million sales tax bill to Amazon.  However, rather than remitting the bill, Amazon is pulling jobs and distribution centers from states like Texas who are enforcing the tax fairness act, thus complicating the issue further.  It is reasonable to say no one wants jobs to disappear, but why does Amazon get to dictate its own terms of operation? 

So, what can you do?  Shop locally!  This is a powerful tool which gives local merchants clear support, telling them you want them in your community.  Buying a book online versus making the trip to your local bookseller may save you sales tax, but you’ll likely lose those savings to shipping costs.  You also miss out on any connections you might make with your neighbors and friends.  Locally owned businesses have far greater positive impact on their communities – both economically and culturally. 

The Friends of Art Bookshop has been making an impact in Bloomington since 1968, when it was created to raise money for student scholarships and to increase awareness of the arts.  We have been successful in our mission for over 43 years!  In the past 15 years alone, the Friends of Art has donated over $515,000 directly to student scholarships, in addition to fundraising on behalf of the SoFA Gallery and the Fine Arts Library here at IU.  Our success with supporting the arts culture of IU and Bloomington is due in large part to our discerning, intelligent, and socially aware community.  Please continue to make thoughtful choices, and shop local!  

For more on sales tax fairness, click here.

If you are a business owner or employee who is interested in making a change, there is a Sales Tax Fairness Workshop coming up at Big Hat Books & Arts, 6510 Cornell Avenue, Indianapolis, IN, 46220 from 11:00 a.m. – 12:30 p.m., Thursday, March 3.  RSVP at elizabethn@bookweb.org

Bloomington, Surrounding Area Receive Low Ranking on Indie City Index

Earlier this month, the researchers at Civic Economics, in partnership with the American Booksellers Association, released a study measuring the strength of independent retail across America.

 The researchers created an index that measures the proportion of total retail sales captured by independent retailers in the Metropolitan Statistical Area (MSA).  An “index” of 100 is the national average proportion of independent retail to chain sales.  MSAs with an index higher than 100 have a healthier than average independent retail sector.  Bloomington (the MSA includes Green, Monroe, and Owen counties) ranked 245^th  out of 366, with an index of 87.4—lower than the national average.

 As a Bloomington resident, I was shocked to see such a low index!  We have a vibrant independent retail sector, a downtown full of unique shops, and a culture of supporting our local businesses!   However, the data speaks volumes about our area—the proportion of total retail sales spent at locally owned stores is much different than the sheer number of independent shops in our community.  Just because we have independent business does not mean that our community is supporting them.

What does this mean for us?  Several things. 

• First, we can shift our spending to locally owned businesses.  Think about buying your next birthday card from a local shop instead of a chain—I bet you’ll find a more unique card for that special someone.  The 10% shift campaign asks communities to do the same thing.
• Second, we can plug the leaks in the local economy.  If people are heading to a chain store to buy something—it may be because they can’t find the product at a locally owned store!  We should see this problem as an opportunity for entrepreneurship.  Locally owned businesses can provide many of the same types of products for the same price with better, more personalized service. 
• Third, we should continue to support our local business network, Local First Indiana, by spreading the word and encouraging people to Think Local First!  The authors of the report note that a Local First-type network serves most of the best-performing MSAs, and that well-run networks can improve the strength of the independent businesses in their communities.  Networks can help market business, support entrepreneurship, share best practices, and encourage sustainability.  Support Local First Indiana by becoming a member, attending an event, telling your neighbors, or simply following us on Facebook or Twitter!

 Limitations of the study:

The authors of the study highlight the limitations of their data.  Cities are ranked by MSA, not by city, which usually expand “community” beyond what we typically think of.  Data do not include grocery stores or automotive retailers (including gas stations).  The complexity of the data also mean that discerning what businesses should be considered local and independent can be difficult when looking at the entire nation.

 I follow the work of Civic Economics because they are the analytical brains behind many studies that show the impact of local, independent on their communities.  Civic Economics is also looking to localize this study and examine city- and county-level data for interested communities.  Let us know if you’d be like to know more.

 If you’d like to see what a town of a similar population, ranked #2, with an Indie index of 139.5 looks like, join Local First Indiana in Bellingham, Washington this June for the 9^th Annual BALLE Business Conference!

 By Martin Sorge, Local First Indiana Resource and Technology Coordinator

National Survey on Independent Business Shows Sales Way Up for Cities with Buy Local Organizations

The National Retail Federation reported a $4 billion spike in consumer spending at the beginning of the Holiday Season this year, but very few of those goods were actually made in America.  NPR reported this discrepancy in a Marketplace story in Nov. 2010, when they talked to Michael Mandel, the editor in chief at Visible Economy, who argued that “holiday spending is largely for things that will worsen the trade deficit, add to our debt overseas and create bigger problems in the future.”

The answer?  Shop Local–as local as possible:  local food, local goods, and local charities, supporting local jobs, local entrepreneurs, the local economy, and the quality of life we all enjoy in Bloomington.  These kinds of businesses often sell items of higher quality that the recipients will keep around their houses a lot longer.  All across America, people are doing just that, and there are numbers to show for it!

A National survey conducted by the National Institute for Self Reliance, a nonprofit research and educational organization, demonstrates that having a Buy Local organization makes a big difference in spending habits for the communities they serve.  The 2011 Independent Business Survey gathered financial data from 2,768 businesses from across the U.S., including Bloomington.

Findings:

• Places with a “buy local” initiative reported revenue growth of 5.6% on average in 2010, compared to 2.1% for those without one.
• Those in “buy local” communities saw a 5.2% increase in holiday sales, while those elsewhere reported an average gain of 0.8%.   This is up considerably since last year, when businesses in “buy local” communities saw a 3% increase, while those without saw only 1%.
• Nearly two-thirds of respondents said that public awareness of the benefits of supporting locally owned businesses had increased in the last year, while 24% said it had stayed the same and only 3% said it had decreased.
• 45% of businesses reported that the campaign had brought new customers to their business
• 55% said the Buy Local Campaign increased the loyalty of existing customers 
• 68% said that the campaign led to an increase in local media coverage of independent businesses
• 51% said that the campaign made local government officials more aware and supportive of the needs of independent businesses.
• 49% said it had led to more collaboration, purchasing, and mutual support among local businesses

Over 500 respondents volunteered concerns in the surveys, with three major concerns popping up over and over again:

• The weak economy
• The growth of online shopping
• Government policies that favor their competitors, such as rules exempting large online sellers from having to collect state and local sales taxes, as local retailers must.

 Bloomington businesses had the opportunity to participate in the survey as well, though the response rate was not the amount we needed to get the statistics for our area.  However, we got some great feedback from some well-loved stores in our city.  Michelle Giansante, owner of Melody Music Shop had this to say about their sales over the last year: 

 ”We celebrated our one year anniversary in October of last year, and along with the 2010 holiday season, we couldn’t have asked for a better first year for our shop! We have increased from 12 to over 20 instructors, increased from 50 to over 100 lesson customers, featured 13 concerts on our back deck for over 180 audience members of all ages, rented out over 300 instruments, and did a quarter million in sales, all with taking on no debt! We are so happy to have such support from the community!”

 Ruth Conway, from the By Hand Gallery, said that the Holiday Season was good.  They have a lot of loyal customers who make a point of buying locally handmade work, and several of them told Ruth and her manager both that they were making conscious decisions to shop locally.  “I think that more and more people are now realizing the value of buying local and also buying the work of people that they know or who they have met. We have always had some of this but it seems to be getting better these days.”

The 2011 Independent Retail Study by the Institute for Self Reliance: http://www.newrules.org/sites/newrules.org/files/2011-ind-business-survey.pdf

  Story by Una Winterman, Founder, Local First Indiana