An Unlevel Playing Field

Brick-and-mortar stores are still alive, but online shopping continues to grow.

The cover of Time magazine on July 20, 1998 probably alarmed an awful lot of people, particularly those in the business of retail development.

The cover showed the founder of Yahoo, Jerry Yang, on a surf board in bare feet easing out of a computer screen across a key board.

The headline screamed "KISS YOUR MALL GOODBYE" with a subhead that said "Online shopping is faster, cheaper and better."

To borrow — and paraphrase — a line from Mark Twain, "The reports of brick-and-mortar retail death are greatly exaggerated."

However, is it just a matter of time before that bold prediction of 13 years ago finally comes true? If so, probably not for a long time even though Internet shopping continues to expand every year, said Les Morris, spokesman for Simon Property Group, which owns Northwoods Mall, Willow Knolls Plaza and many other retail venues nationwide.

"I can tell you the Simon properties are doing very well. Occupancy and sales have both been up. Second quarter sales were up 9.4 percent over the second quarter of 2010. I would say mall shopping is far from dead. In fact I would say it's thriving. We're seeing real growth," Morris said.

There's no question, however, that Internet shopping also is growing. On Cyber Monday last year – the name given to the Monday after Thanksgiving because it is the largest single Internet shopping day of the year – sales topped $1 billion. It was the first time in history that Internet shopping reached that mark in a single day, according to comscore.com, which has been tracking Internet shopping for more than a decade.

Comscore.com said Internet sales were $32.6 billion total for the holiday shopping season – Nov. 1 through the end of the year – in 2010, a 16 percent increase from the previous year. By contrast, it was about $6 billion in 1998, helping to prompt that Time magazine prediction.

It is expected to experience similar growth this year, according to the National Retail Federation.

For all the bravado that malls and shopping centers are still strong, retailers acknowledge they are taking a hit in sales at those centers because of the ease of shopping online. Another issue – and a big one for retailers – is that most online sales are made without a sales tax being paid.

"There is not a level playing field when it comes to competing with the Internet and we're competing with it every day. It's not fair, pure and simple," Morris said.

He said Simon Property Group supports the Main Street Fairness Act that will be proposed in Congress by Illinois Sen. Dick Durbin. The act would charge a sales tax on all Internet sales, regardless of the state where they originate or whether the company has a physical presence in any certain state.

"That would be great for the independent businesses if Congress would pass that bill," said Stacy Mitchell of the Institute for Local Self-Reliance. "Companies and websites like Amazon pose the biggest threat to the independent retailers. Their growth curve has been tremendous and last year there was a noticeable uptick in the effect shopping online had on independent retailers.

"We try to emphasize in "Buy Local" campaigns to think about the money coming back into a community from retail sales. With online shopping it's practically zero," Mitchell said.
Eric Brinker, president of the Metro Centre in Peoria, said there are few ways for a retailer to fight back. "We can't hide behind the fact people are going to buy online. It's easier, there's usually no sales tax, you can find anything on the Internet. What we have to do to compete is offer great customer service," he said.

Brinker cited a personal example, saying he chose to spend a few more dollars for a sweater he wanted by going to Bushwacker, a store in the Metro Centre, because he knew the staff there would give him great service before and during the sale. "I could have bought it online, but to get the service I wanted it was worth it to spend a little more," Brinker said.

When he proposed the Main Street Fairness Act, Sen. Durbin – who will formally introduce the bill next spring – said his intention is to level the playing field between online and bricks-and-mortar retailers by allowing states to require sellers to collect sales taxes that are already owed under current law regardless of whether the seller has a physical presence in the state.

"Why should out-of-state companies that sell their products online have an unfair advantage over Main Street bricks-and-mortar businesses here in Springfield?" Durbin said when announcing the bill while in Springfield in August.

"The Main Street Fairness Act doesn't ask anyone to pay a single penny more in taxes. Instead, it would help governors and mayors collect taxes that are already owed," he said. "Between 2009 and 2012, states across the country, including Illinois, are expected to lose as much as $37 billion in uncollected state and local taxes on internet and catalogue sales. From 2005 to 2010 the state of Illinois estimated it lost $153 million each year."

According to Durbin's office states now cannot require sellers to collect sales tax in states unless they also have brick-and-mortar stores or other physical presence in the state. The burden falls to consumers who are required to report to state tax departments any sales taxes they owe for online purchases. As a result, local retailers are at a competitive disadvantage because they must collect sales taxes while out-of-state retailers, including many large online and catalog retailers, in effect give their customers a discount by collecting no state or local sales taxes.

"Why should consumers face the burden of reporting all of their online purchases? Main Street retailers collect sales taxes on behalf of consumers. Why shouldn't online retailers do the same?" Durbin said.

Last spring the Illinois General Assembly adopted legislation, also called the Main Street Fairness Act, to require online retailers who own warehouses, factories or maintain affiliate companies in the state to collect sales taxes on purchases made by Illinois residents.
The act does not impose a uniform state sales tax, but requires the seller to collect the sales tax for all purchases based upon where the buyer is located.

According to Durbin's office the Main Street Fairness Act:
• Certifies the Streamlined Sales and Use Tax Agreement, a comprehensive interstate system to streamline and harmonize sales tax rules and administrative requirements;
• Provides states with the clear authority to require all retailers to collect sales taxes;
• Does not create a new tax, but provides a necessary tool to collect an existing tax in a simple and fair manner;
• Releases consumers from tax remittance obligations;
• Treats all retailers with equal sales tax collection responsibilities; and
• Reduces collection costs and provides compensation for all sellers required to collect sales taxes.

The Main Street Fairness Act is supported by the National Governors' Association, National Conference on State Legislatures, National Retail Federation, International Council of Shopping Centers, and Retail Industry Leaders Association, Durbin's office said.

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