N.C. retailers to ante up
Furnitureland South first to collect out-of-state sales tax
By Clint Engel -- Furniture Today, April 11, 2004
HIGH POINT — Furnitureland South started collecting sales and use taxes this month on product it sells to consumers in 26 to 30 states, calling it a service to customers but also a way to stay ahead of states aggressively pursuing out-of-state retailers for tax collection.
Although not required by law to do so yet, the Top 100 store has reached agreements with states to collect the taxes. Consumers are required by law to pay the tax, but often don't.
The retailer wouldn't identify the states, but Jason Harris, Furnitureland South's executive vice president, said the company eventually will collect for all 45 states with a sales tax. He said he believes other North Carolina retailers likely will follow suit.
High Point-based Rose Furniture said it is making preparations to collect out-of-state taxes. Fellow North Carolina Top 100 companies Wood-Armfield/Utility Craft and Hendricks Furniture Group — which operates Boyles and other stores — said they are looking into the possibility.
The moves are in part a reaction to a multistate effort to simplify and unify the process of administering and collecting state sales taxes, as well as to federal legislation that would require "remote sellers" to collect.
A group of states came together in 2000 in reaction to a 1991 U.S. Supreme Court case, Quill vs. North Dakota. The court ruled that a state couldn't require remote sellers to collect sales or use tax unless the sellers had a physical presence or "nexus" in the state, such as delivery trucks or distribution centers. The court said the state tax systems were too complex to require out-of-state sellers to collect.
That encouraged states to make reforms. So far, 42 of the 45 states with a sales tax have joined an effort called the Streamlined Sales Tax Project.
Diane Hardt, tax administrator for Wisconsin and co-chair of the project, said the states have developed the Streamlined Sales and Use Tax Agreement to simplify the tax collection system. To date, some 20 states have moved to comply with the agreement, although some laws have yet to take effect. More states are expected to follow suit, she said.
In addition, bills before the U.S. Congress would require collection, which remains voluntary until a federal law is enacted. Hardt expects the bills to reach the hearing stage this year and be enacted in 2005.
Some retailers who sell across state lines are working with the states in the tax project to support the program — and to take advantage of an amnesty clause in the agreement that Hardt said essentially forgives past collections from retailers with possible nexus concerns, as long as they start collecting the taxes now.
"The writing was on the wall," said Harris of Furnitureland South. "We didn't feel pressured to do it, but we felt with the new Streamlined Sales Tax Project it was inevitable."
In a press release, Furnitureland South said, "There are strong legal trends indicating sales and use tax collection will soon become a virtually universal practice among retailers. In the meantime, customers are being dealt a disservice if they are not accurately advised or assisted in payment of the sales or use tax even when taking possession of their furniture outside of North Carolina."
By collecting the tax, Furnitureland South is eliminating a legal burden for its customers, Harris said, plus taking advantage of the amnesty clause for past taxes.
He said it also frees the retailer to do things it has avoided out of concern that it might be interpreted as having a presence in other states. The company can now use its own trucks and drivers to deliver outside of North Carolina and make out-of-state factory pickups in states where it collects taxes.
"We'll be able to contract with designers in other states who can work with us, have seminars, shows and meetings," he said. "We can furnish model homes in other states."
The retailer also has toyed with the idea of putting distribution hubs in other states — again to enhance its service — and is considering opening stores outside North Carolina.
Furnitureland South, which did about $168 million in furniture, bedding and accessory sales last year, appears to be the first major North Carolina furniture store to begin collecting, but others are at least looking into it.
"We are working on a process to start registering for sales tax (collection) outside North Carolina," said Bill Kester, president of Rose Furniture here. "It will probably take two or three months to get it all lined up, and I think most everybody else is doing the same thing."
So far, Furnitureland South customers haven't complained about the tax collection, Harris said. One customer who learned collection would begin in April asked the retailer to wait until then to enter an order, so the tax would be added automatically.
Harris said the tax move may also eliminate the perception — a inaccurate one, he believes — by some out-of-state competitors that North Carolina furniture retailers have an unfair advantage.
"We feel this will open people's eyes to the great retailing that we do in terms of display and service and the entire shopping experience," he said.
He jokingly added that at the High Point market, "I'm looking forward to not having to hide my badge … when I get in the elevator."
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