Hubert Joly doesn’t give many speeches. But when he does, there’s been a recurring theme lately: online sales taxes.
Best Buy’s CEO is increasingly using his bully pulpit to push legislators to pass a long-stalled bill that would allow states to collect sales tax from out-of-state online retailers. Doing so would level the playing field with bricks-and-mortar retailers such as Best Buy, which already collects those taxes, he said.
“We think it’s an unfair situation,” Joly told the National Governors Association a week ago. “I don’t know that anyone believes that the government should be picking the winners in this country.”
Joly sounded a similar call to action at Best Buy’s annual meeting last month and relayed the same message during a speech to the Economic Club in Minnesota in April.
Joly, a board officer for the lobbying group Retail Industry Leaders Association, has also spent a lot of time with legislators on Capitol Hill in recent months to make his case, citing the issue as a “structural impediment” to his business.
“Hubert is very good at taking something sort of complex and simplifying it and bringing common sense to it,” said David Strasser, an analyst with Janney Montgomery Scott.
But the bill faces an uphill battle in the House amid reluctance to expand taxing authority and concerns that the regulations would be a big burden on smaller retailers that would have to navigate thousands of state and local tax jurisdictions.
Still, most major retailers including Amazon, but with the notable exception of eBay, are on board with the legislation and have been working as part of retail coalitions to advocate on the issue.
The concern has been on Best Buy’s radar for years, but Joly hasn’t been vocal on it until recently because he has been busy with the company’s turnaround plan. Still, there has been a lot of behind-the-scenes lobbying, Strasser said. And the company cites the issue as a top legislative priority for the company.
“It’s nothing new for us,” said Laura Bishop, Best Buy’s vice president of public affairs. “It’s been an ongoing discussion in the company and among other retailers.”
Last week, a group of U.S. senators introduced a bill that would add the online sales tax legislation to a non-controversial bill to extend a 10-year moratorium on taxing access to the Internet. It was part of a last-ditch effort to get the issue resolved before Congress adjourns and before the midterm elections.
“It feels like we’re on the 5-yard line,” Joly told the governors last week. “I think if we all work together, we can push this over the finish line this year.”
During his remarks, Joly also outlined Best Buy’s Renew Blue turnaround strategy, which he provided as an example of how other brick-and-mortar retailers can survive in an increasingly online world. A core part of Best Buy’s game plan has been matching the prices of its biggest online competitors in an effort to combat the phenomenon known as showrooming.
“While we match Internet prices, I cannot match the sales tax,” Joly said, noting that Best Buy’s operating margins are around 3 to 4 percent. “I cannot fight with an 8 percent price disadvantage.”
Target executives have also met repeatedly with members of Congress to advocate for the bill and will continue to do so, said company spokeswoman Dustee Jenkins.
But if any retailer is going to fully embrace this issue, it makes sense for it to be Best Buy, Strasser said. After all, it’s with the bigger-ticket items such as TVs and other electronics where sales tax may factor into a consumer’s decision as to where to buy it. So Best Buy is one of those most hurt by the current situation and has the most to gain from passage of the bill, he said.
But David Marcotte, a senior vice president at Kantar Retail, is not optimistic the bill will go anywhere in the next couple of years.
“I can understand trying to go public and trying to motivate people to push this law ahead, but I think you’re pushing on a rope,” he said.
Marcotte wondered if one of Joly’s aims in talking more about this subject was to signal to shareholders that he’s aggressively combating online competitors such as Amazon.
Amazon has already been collecting sales tax in an increasing number of states where it has built fulfillment centers.
“It’s not a zero-sum game, though,” Marcotte said. “If Amazon loses that sale, does that mean Best Buy will get it? Well, they will have to fight for it with everyone else.”
Researchers at Ohio State University recently came out with a study that found that Amazon’s sales fell 9.5 percent in five states where it began collecting taxes. The effect was more pronounced on larger purchases.
The study also found that brick-and-mortar retailers saw a 2 percent increase during the same time while sales at other online retailers jumped nearly 20 percent.