Below the fold in an article on last night’s Aberdeen City Council meeting, we learn that the Hub City is expecting out-of-state online vendors to send us an additional $200K in Wayfair sales tax:
The city is expecting an increase in sales tax revenue, and has figured about $200,000 in additional sales taxes as a result of the U.S. Supreme Court decision that supports South Dakota’s law seeking to collect sales tax from online sales [Elisa Sand, “Northern State Commitment Included in 2019 City Budget,” Aberdeen American News, 2018.07.31].
$200K from 2% tax means our city leaders guesstimate that we 29,000 Aberdonians are going to buy $10 million worth of stuff from Amazon.com and other remote sellers. That’s $6.90 in sales per head, or about $350 in online purchases per Aberdonian.
If we extrapolate Aberdeen’s guesstimate to the entire state, $6.90 per person multiplied by 860,000 South Dakotans gives us just $5.9 million more in municipal sales tax revenue (taking a lazy assumption of 2% local sales tax everywhere) generated by just about $300 million in total yearly online purchases. For the state, 4.5% sales tax on that level of online buying would produce only $13 million, well shy of the $35 million to $58 million that the state has suggested goes uncollected on the stuff we South Dakotans buy from non-South Dakotans online.
The total municipal sales tax due in Aberdeen in 2017 was $18.6 million, suggesting that total taxable sales in our fair city were $930 million. The Aberdeen City Council thus appears to be predicting only a 1% increase in sales tax revenue from our Supreme Court victory on online sales tax.
Maybe my city leaders are just being really conservative in their estimates to avoid any wild spending sprees. Whatever new revenue comes in, Aberdeen gets to keep all of it. While the state has to give us back the online sales tax windfall in the form of 0.1-percentage-point increments shaved off our statewide 4.5% rate per the Partridge Amendment, no such provision exists requiring a reduction of municipal rates commensurate with local Wayfair windfalls. Aberdeen and other local governments could do local versions of the Partridge Amendment if they wanted, but don’t bet on it.
Wait. What?
I thought the purpose of the legislation that led to the Wayfair case was to level the playing field for local retailers. Shouldn’t such well crafted legislation have city leaders discussing how new businesses will now open because the unfair advantage that internet sellers enjoyed is now gone?
If main street is being helped, the money should be coming from collections done by local retailers not online retailers. One would expect local retailers to be flooded by new customers who have changed their shopping habits instantaneously because online retailers now collect sales tax. Yet, the Aberdeen civic leaders seem to be saying that they expect the increased revenue to come from remote retailers. What went wrong?
(In case anyone is wondering, yes, I am being sarcastic.)
They say conservative when they hope beyond hope revenues are liberally spread around for all concerned. Conservative influx versus liberal founts of cash.
Way off topic- congratulations to SDSU football for new 5th year Senior transfer and former iowa Hawkeye safety Brandon Snyder. The young man has/had AA potential in Division 1 football and he is a class gentleman.
With the lose of retailers in Aberdeen, I suspect Aberdeen will be dealing with a decline in overall sales and thus less revenue collected by brick and mortar retailers in the community.
I’m still vague on when the online sales tax collection actually begins and if more legislation is needed before taxes are collected. It will be interesting to see what online sales really are. I suspect the statewide average will be at least $750 per year.
Aberdeen, Huron and Sioux Falls have an unaddressed immigrant internet shopping pattern.
This is significant for multicultural buying habits because among these immigrant groups, at least a quarter of consumers are likely to prefer shopping in a language other than English.
What I think is exciting is how jubilant they all are about taking somebody else’s money without their consent. . . snark
OS, you consent to our taking your money by your continued participation in and benefit from the social contract. You may withdraw your consent by leaving the community.
Kal Lis makes an interesting point about leveling the playing field. However, it occurs to me that the increased revenue projection doesn’t have to come strictly from online retailers. The city could be figuring that the Wayfair ruling and South Dakota’s newly authorized collections from remote sellers will reduce online sales and increase Main Street sales. If that happens, maybe Aberdeen collects $100K more from increased sales here in town and $100K from the purchases Aberdonians make of iPads, Italian suits, foreign language novels, REI camping gear, and other consumer goods not available in our fair city.
Porter, that immigrant online shopping to which you refer: what sorts of goods are we talking about? Lots of food? Clothing? How much of it happens in U.S. stores serving those other-language/other-culture customers?
Asian-American households are heavy buyers of non-food items for the home, using online providers to get exactly what they need with increased satisfaction and ease of comparison shopping. Asian-Americans spend more online than non-Hispanic Whites on many categories, including hair care, oral hygiene, skin care, housewares, computer and electronic products and household supplies.
http://www.nielsen.com/us/en/insights/reports/2018/asian-americans-consumers.html
Middle Eastern online products are big sellers and speaking to clerks or reading catalogs in their native tongue is vital.
http://istizada.com/blog/the-middle-east-arab-consumer-profile/
Scott, I’m not sure what the hold-up would be. We appear to have all the statute we need to collect in SDCL 10-64, the bill Senator Deb Peters got passed and which prompted this lawsuit.
As a lifelong retailer, I’d say Aberdeen would be more apt to see increased Middle Eastern storefronts than Huron. Middle Eastern people put more stock in face to face horse trading type of commerce and SE Asians prefer electronic everything.