Consultants in demand as Supreme Court rules on online sales tax

02 July 2018

In what has been lauded as a victory for Main Street, the Supreme Court has ruled that states have the power to force online retailers to collect sales taxes. The dramatic reversal of a 1992 ruling has seen consulting firms release public statements and prepare white papers to help clients in online retail navigate the new tax landscape.

In South Dakota v Wayfair the Supreme Court delivered a huge blow to online retailers who have enjoyed a significant tax advantage over brick-and-mortar rivals for decades. In a 5-4 ruling written by departing Justice Anthony Kennedy, the court reversed a landmark 1992 precedent that made ‘physical presence’ a requirement for states to collect local sales taxes from retailers.

Hailed by President Trump as a “great victory for consumers and retailers”, the decision means e-commerce companies may be about to cough up an extra $13 billion in state taxes each year. Around half of the products sold by Amazon, for instance, are punted by third-party vendors from whom no sales tax is collected. Shares in the firm fell by 1.1% overnight after the justices’ ruling.

The decision only has immediate impact in South Dakota, which enacted the ‘economic nexus’ as opposed to ‘physical presence’ test in a law that targets online retailers with revenues exceeding $100,000 in the state. Dozens of other US states have similar legislation which is almost certain to come into effect. States where no such provisions are made are widely expected to draft legislation soon, rather than missing out on billions in tax revenue.

Consumers will face higher prices as Amazon and the like compensate for their loss. But e-commerce firms can expect change on a monumental scale as their tax obligations enter uncharted territory and vary considerably across states. Consulting firms have already released statements on the ruling, anticipating a raft of tax advisory queries from clients in the retail game.

Consultants in demand as Supreme Court rules on online sales tax

"Today's Supreme Court decision in South Dakota v. Wayfair could turn out to be almost as significant for American businesses as the recent rewrite of the U.S. federal tax code," said Jeffrey C. LeSage, Americas Vice Chairman of the Tax practice at KPMG. "It's a decision that reflects the realities of an increasingly digital global economy."

"The impact of the Court's ruling on companies in terms of time, technology, and expense is likely going to be substantial. Businesses will now need to prepare to closely examine and retrofit their operations to determine where they have to collect tax, whether their goods are taxable, and how they are going to handle the new tax computation, filing, and remittance obligations."

Chicago-headquartered BDO USA, a tax, accounting, and consulting firm, has published a full breakdown of the case and its implications for retailers. Describing Wayfair as a “watershed moment in state taxation”, the firm argues that its consequences will extend beyond retailers and consumers, to force a major overhaul in the tax architecture of state and local governments.

RSM US, the US member of RSM’s global network of accounting and consulting firms, anticipated the potential impact of the pending case, writing a comprehensive white paper on its implications in January. Since the decision, the firm has held webcasts for clients and other interested parties eager to find out where they stand.

Deloitte also conducted an early analysis of the potential implications of a Supreme Court reversal, advising clients in February to get their tax affairs in order. After the ruling Valerie Dickson, partner at Deloitte Tax LLP, released the following statement:

"This is a landmark ruling that will have a significant impact on online businesses of all sizes. Companies engaged in e-commerce may have to revise their business models, their IT systems, and their internal processes for calculating their tax obligations. One key question is whether they have the required customer data to determine how to properly source sales."


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US grocery sector in store for further hard discounter expansion

01 April 2019

Hard discounters offer customers bulk food at low prices in an unassuming shopping environment. German firms Aldi and Lidl have considerable clout in Europe, and in recent years have globally expanded their store footprints. Aldi is well-positioned in the US, garnering high-level support from consumers, while Lidl, which entered in 2017, has quickly built a strong reputation. As the rollout of the discounters continues, local brands face stiff competition.

Competition among supermarkets has heated up in recent years as consumers increasingly sought out discounters and moved away from hyperstores. German discounters Aldi and Lidl in particular have asserted their dominance across global markets with the former opening of hundreds of new stores and the latter entering the US market in 2017.

New analysis by Bain & Company analyzes how far the rise of discounters has affected grocers in the US market. The report, titled "How US Grocers Are Standing Up to Europe’s Hard Discounters," is based on a survey of 17,400 consumers, among other data sources.

Hard discounters NPS

To better understand the impact of hard discounters Aldi and Lidl on the US market, the firm’s recent survey of consumers asked respondents about their grocery shopping habits using the Net Promoter Score function. The Net Promoter Score measures how likely it is that a consumer will recommend a product, service, or brand to friends and family. 

In terms of the regular grocery shopping trip, hard discounters have managed to top the market at 43 points, with supermarkets around seven points behind. Mass merchants have the lowest score in the category at around 20 points. For big stock-ups, hard discounters, with their large bulk offering and appeal, score 60 points – well above that of warehouse clubs (45) and supermarkets (38). The analysis shows that even for quick trips for a couple of items, hard discounters top the score at around 10, compared to six for supermarkets and negative scores for warehouse clubs and mass merchants. The only category in which the hard discounter segment performs relatively poorly is buying prepared foods for today – at 25 compared to 50 for warehouse clubs and 35 for supermarkets.

Aldi customer advocacy

Aldi, which has been in the US market since 1976, has resonated strongly with consumers, coming in the top three for NPS for consumer advocacy. The company has managed to increase its position on last year by nine points, arriving at 55 – 15 points behind the leader. Aldi was noted in particular for its delivery of “best everyday low prices” and “best value for the money.” Lidl, a relative newcomer to the market, has a middle-of-the-road score.

Consumer advocacy is crucial to success within grocery

The success of discounters generating high consumer advocacy scores, according to the Bain, mean they are likely to show strong performance in the future, The firm notes that promoters purchase more than twice as frequently as detractors, with 70% of promoters shopping two times a month or more compared to detractors at 32%. The firm also found that the average monthly amount spent among promoters is almost three times as high as detractors, at $111 against $39. Promoters additionally tend to be more loyal to their chosen company, netting 28% of the total wallet compared to 11% for detractors.

“Lidl and Aldi are just beginning to flex their competitive muscles,” Mikey Vu, a partner with Bain & Company’s Retail Practice and a coauthor of the report, said. “What we’re seeing is that US grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”