I am not a shoe girl. This horrifies my colleagues who, I’m pretty sure, wish I could find other than black clogs and tennis shoes to wear on a regular basis (little do they know that they’re lucky that, having grown up in the rural South, I even bother to put on shoes).
But for every one of me, there’s a Carrie Bradshaw out there, boosting sales of shoes into the stratosphere. How strong are shoe sales? Just ten years ago, the size of the retail shoe market was $40 billion.
The size of the market appealed to a young entrepreneur, Nick Swinmurn, who eventually founded Zappos.com, an online shoe retailer. Swinmurn recruited successful entrepreneur Tony Hsieh (pronounced “Shay”) to invest in his company. Hsieh joined Zappos.com full time in 2000; today, he serves as the company’s CEO.
The company grossed more than $1 billion in 2008, despite an economy that that had many other retailers scrambling for cover. The last curve ball thrown at the company and other online retailers is the threat of states imposing new tax laws or enforcing existing tax laws on online sales. New York was the first big state to make such a statement, sending statements to online retailers that they must register and begin collecting sales tax. The New York law presumes to redefine what constitutes a “vendor” on the web – and makes affiliates, marketers and shops that direct traffic to online retailers – potentially responsible for creating a “physical presence” for purposes of sales tax. It is, in the online retail world, a big deal, causing mammoth retailers like Amazon.com and Overstock.com to threaten changes in the way that they do business in reaction to the tax.
I’ve been following the New York law fairly closely. The potential fall-out from the law could be pretty significant to the corporate and tax worlds. That’s why it piqued my interest to hear the Zappos team, specifically Hsieh, talking about it on twitter. I contacted Hsieh and asked if he’d be amenable to answering a few questions about his business and tax. He graciously agreed and his interview appears below.
taxgirl: Clearly, starting any new business can be challenging. Were there any special challenges that you faced with a dedicated online retail business?
Hsieh: In the early days of Zappos, not only did we have to convince customers by buy from us, but we had to convince the different brands that we wanted to carry to sell to us, because they had not heard of Zappos before. So an extra challenge was having to “sell” the Zappos concept to the brands.
taxgirl: As you know, amazon.com recently challenged a NY law related to sales tax collection for online retailers – and lost. What does this mean for zappos.com in terms of doing business in NY and for your Associates program?
Hsieh: We actually started collecting NY sales tax in 2008 due to the law, so the fact that Amazon lost the lawsuit hasn’t changed anything for us.
taxgirl: On zappos.com, you’ve stated that you believe that one day, 30% of all retail sales in the US will be online. How soon do you think we’ll get there? Do you anticipate that more states will look for ways to raise revenue by looking at online sales? Is this something that online retailers like zappos.com are concerned about?
Hsieh: I think it’ll be at least 10 years out before we get there. Many states are already looking to raise revenue by taxing online sales. We’re not really concerned at Zappos either way, as long as the rules are easy for every online company to follow and are applied equally to every online business.
taxgirl: As the economy continues to decline, politicians are looking for ways to turn things around. The Wall Street Journal recently posted a piece that suggested that the best way to kick start the economy was to eliminate tax on corporations. What’s your take on this idea?
Hsieh: I think if the money saved from eliminating taxes enables corporations to spend more money on hiring and training people, it definitely has the potential to help the economy turn around.
taxgirl: Have any of your major decisions regarding facilities and outlet stores been influenced by tax policy – cuts, rates or sales tax? If so, in what way?
Hsieh: Yes, we currently don’t have an office in California because it would mean we would need to collect sales tax on all California orders.
taxgirl: And lastly, just for fun, if Uncle Sam handed you a big refund check today, what would you do with it?
Hsieh: I’d probably donate it to charity.
Thanks to Tony Hsieh, CEO of zappos.com, for taking the time to chat with me. For more about zappos.com, you can visit their web site or check out the company’s blog.
The Conservative Reform Network blog (Pennsylvania)
Online shoe company Zeppos.com chief executive Tony Hseih forgets The Forgotten Taxpayer and his own customers when he fails to argue against the imposition of sales tax on his business because it is adverse to his customer’s interest, to the interest of The Forgotten Taxpayer and to public interest of the economy of the country. This narrow view of business interests, mostly typified by the Chamber of Commerce but many other as well, is why I say that Big Business ( $40 million gross is big to me) is not the friend of The Forgotten Taxpayer.
taxgirl does a daily blog relating to …taxes and it is very interesting. She comments on specific questions and then on an overview. Here she interviews Tony Hseih (pronounce ‘shay’) on the imposition of sales tax to online sales in New York and, by extrapolation, in Pennsylvania and other states.
Hsieh: I think it’ll be at least 10 years out before we get there. Many states are already looking to raise revenue by taxing online sales. We’re not really concerned at Zappos either way, as long as the rules are easy for every online company to follow and are applied equally to every online business.
Mr. Hseih notes the obvious, though: Hsieh: I think if the money saved from eliminating taxes enables corporations to spend more money on hiring and training people, it definitely has the potential to help the economy turn around.
What I imagine The Forgotten Taxpayer, who might well be a customer or potential taxpayer of Zeppos.com shoes is that Mr. Hseih will not see his interest affected by imposition of sales tax to online sales although he does see the impact on his customers and on the economy and I hear that Mr. Hseih will not use company resources, its advertising and public relations, to advocate against a sales tax as having an adverse impact on its customers who have to pay more and, therefore, could buy less and I would think even Mr. Hseih would understand the customer would buy less, having less money to spend because government took it
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading.
good article , hope to see more about this subject.