Vintage Filings Legal Blog

Online retailers who open a physical store during the holiday shopping season could see more than a 15% decrease in online sales, according to research by professors at MIT Sloan School of Management. The opening of stores triggers the requirement to charge sales tax, which affects online sales because customers can look at competing retailers online and find alternative options at better prices, they explained.

The professors found in a paper titled, “How does an Obligation to Collect Sales Tax Affect Consumer and Firm Behavior?” that U.S. state sales tax laws have a significant impact on both customer and retailer behavior, providing a disincentive for retailers to establish a physical presence in high-tax states as well as a disincentive for customers to make online purchases when sales tax is charged.

Coauthor and MIT Sloan Marketing Professor Duncan Simester said that retail websites are required to charge state sales tax once they establish a physical presence in a state such as a retail store, warehouse or office. “On the Internet, we found that when sales tax was charged, demand dropped about 16%,” he said.

The authors found that a way to mitigate the decrease in online sales is to offer price discounts. “The deeper the discount, the less likely customers were to look at competing retailers and the smaller the impact of charging sales tax,” said Simester. “You may still have to pay 5% more because of sales tax, but the reality is that you are already getting a good deal so there is less incentive to search elsewhere.”

The effects of an automaker bankruptcy would inflict much higher costs to United States taxpayers, up to four times the amount of the proposed federal bridge loans if at least two companies failed, according to a joint analysis released today by Anderson Economic Group (AEG) and BBK, an international business advisory firm with extensive experience in the automotive industry. The analysis is the first comprehensive study of the likely costs of a bankruptcy declared by the Detroit automakers contrasted with the taxpayer costs of the requested federal bridge loans. The results were released during a press conference at BBK headquarters in Southfield, Michigan, and show that the nation’s economy would be far better served by providing bridge loans to the automakers.

“We hope this research report provides policymakers and taxpayers with an objective, independent assessment of what an automaker bankruptcy would look like,” said Patrick L. Anderson, Principal and CEO, Anderson Economic Group. “The findings indicate a bridge-loan scenario would be the more financially sound choice of the scenarios currently under debate in Washington, with lower relative economic costs than not providing any type of financial support.”

The study estimated direct taxpayer costs of multiple scenarios for a bridge loan, and a bankruptcy, over a two-year period. It revealed that the losses of employment, income, and tax revenue in a bankruptcy scenario are unequivocally much higher than the losses from company restructuring with the help of federal bridge loans. Under a bankruptcy scenario, which contemplates two of the three Detroit-based automakers failing, there would be more than 1.8 million one-year jobs lost, and nearly $70 billion dollars less in federal and state tax revenue over a two year time period.

“The report shows the immediate impact of the collapse of even two automotive manufacturers that would only further exacerbate our current economic crisis and likely would precipitate a complete shutdown of nearly all auto production in the U.S. for some time,” according to Kriss Andrews, Managing Director and Automotive Practice Lead, BBK. “The other direct economic costs of a bankruptcy would be similarly distressing – from additional debtor-in-possession financing of an already bankrupt automaker by the Federal government, to the disruption of the credit and related markets.”

Very few companies push the envelope when it comes to marketing their product like Apple (AAPL), however we found out that even they are not outside of the confines of the law.  Recently Apple advertised they said “all the parts of the internet are on the iPhone”.  See the commercial below:

However it turns out that, as amazing as the new iPhone may be, it cannot access “all parts of the Internet”.  There are several sizable technology components such as Flash Video and Java Script that do not work on Apple’s wireless device.  Apple attempted to defend the claim by saying that the intent of the assertion was simply to state that the iPhone’s web browser could access any website, but not every particular service.  However, considering that some of the most popular websites are not able to fully render on the phone, the courts ruled that Apple was misleading the public with their ads, see below for the official statement,

“We noted Apples argument that the ad was about site availability rather than technical detail, but considered that the claims “You’ll never know which part of the internet you’ll need” and “all parts of the internet are on the iPhone” implied users would be able to access all websites and see them in their entirety.  We considered that, because the ad had not explained the limitations, viewers were likely to expect to be able to see all the content on a website normally accessible through a PC rather than just having the ability to reach the website.”

So regardless how large your brand reach is, accurate advertising is a prerequisite to keeping legally clean.  And if you are working for a publicly traded company, make sure that each piece of marketing material that is displayed to the public is true.