published Friday, January 27th, 2012

Backers of U.S. bill confer with brick and mortar retailers

Terri Holley, left, owner of Embellish, assists customer Dee Howalt at the store in Warehouse Row. Although Embellish mainly sells shoes, Holley operates a rotating “trunk show” with retail clothing in part of the store.
Terri Holley, left, owner of Embellish, assists customer Dee Howalt at the store in Warehouse Row. Although Embellish mainly sells shoes, Holley operates a rotating “trunk show” with retail clothing in part of the store.
Photo by Ashlee Culverhouse.

When Terri Holley started selling shoes in high school, it was a simpler time for businesses.

Chat with the customers, learn their clothing wants and fit them in the perfect pair of stilettos, boots or flats.

When she opened Embellish, a Warehouse Row shoe and clothing boutique, customer service remained a top priority, but the smiles and friendly conversations with customers all too often changed to curt thank-yous and cool departures.

"We spend time with them, help them determine the right style, the right size, and then they go to the Internet," Holley said. "They view it as a discount."

Brick-and-mortar retailers are required to collect state sales tax, but the Supreme Court has ruled that online retailers don't have to collect local sales taxes in states where they have no retail stores or physical nexus.

As a result, Chattanoogans are able to effectively buy untaxed goods online for 9.25 percent less than comparable goods sold at local brick-and-mortar stores that must collect state and local sales taxes.

A bipartisan group of 10 U.S. senators, including Tennessee Republicans Lamar Alexander and Bob Corker, recently introduced a bill that would allow states to compel online retailers to collect sales tax.

The measure has been supported by the Chattanooga Area Chamber of Commerce and Tennessee Gov. Bill Haslam, R-Tenn.

"Bottom line is it's a states' rights bill," Alexander said Thursday on a conference call with small retailers across the state. "This is a matter of people not paying taxes they owe."

Tennessee taxes retail purchases at 7 percent and local governments add up to 2.75 percent more on to the sales tax bill. That cost is easily avoided by consumers who look at products in the store then make their purchase online.

Legally those customers are required to pay state sales tax, but virtually no shoppers do. That means state government fails to to collect millions of dollars in taxes.

Alexander said if these taxes were paid, the state could spend it in ways benefiting all taxpayers such as lowering the tax rate or giving public schoolteachers raises.

Haslam said the amount lost is climbing. Those losses aren't just coming from high-end retailers such as Embellish. Popular websites such as Amazon.com and Walmart.com now sell groceries online, letting consumers avoid state tax.

"People who think it's just clothes or it's just this and that are kidding themselves," Haslam said during Thursday's call with retailers. "It's too big a part of our economy to ignore right now."

Regardless of whether sales tax avoidance sends customers online, Holley believes she'll be successful by continuing to do what she knows best.

"I'm a sales person at heart. I love selling and I love meeting the customers," she said. "It's really just about providing value."

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