BT Stathopoulos Peter 07 24 14Retailers need to take notice. The Multistate Tax Commission has remote sellers, like those who participate in programs like Fulfillment by Amazon, in its crosshairs. By Peter Stathopoulos

Ever since the U.S. Supreme Court upheld a bright-line physical presence test of sales tax nexus in Quill Corp. v. North Dakota, states have been attempting to erode or erase that bright line in an effort to tax remote sellers. One of the latest efforts at smudging that bright line is the Multistate Tax Commission’s (“MTC”) Marketplace Seller Voluntary Disclosure Initiative, sometimes referred to as the Fulfillment by Amazon or “FBA” tax amnesty program. (The MTC is an intergovernmental agency with over 40 full or partial state members, which lists as its goals the promotion of fairness and uniformity in state tax administration.)

Currently, thousands of merchants sell merchandise remotely over the Internet using third-party logistics (“3PL”) providers for fulfillment of orders. One of the largest 3PL providers is Amazon through its “Fulfillment-By-Amazon” service. Under Amazon’s FBA program (and similar 3PL programs), a merchant consigns inventory with Amazon, which is then stored in one or more of Amazon’s hundreds of warehouses throughout the country, as illustrated in the Sept. 27, 2017, Business Insider article titled, “This map of Amazon’s warehouse locations shows how it’s taking over America.” Until very recently, the merchant did not even know where the inventory was stored, let alone exercise any control over the location of the inventory. More recently, merchants are able to determine where their inventory is located, but can’t control its location.

Although merchants may not always know where their inventory is located, states often have superior knowledge derived from auditing a 3PL provider or based on the 3PL provider’s tax returns. For example, South Carolina recently filed a complaint against Amazon, alleging a $12 million sales tax liability that should have been collected and paid on behalf of third-party sellers, as reported by CNBC on Aug. 15, 2017. California and Washington have implemented aggressive nexus discovery programs aimed at merchants with inventory in the state as a result of a 3PL service.

Recently, the MTC launched a state tax collection initiative aimed at merchants who have inventory in member states solely by reason of participation in the Amazon FBA program or the use of a similar 3PL service. The Online Marketplace Sellers Voluntary Disclosure Initiative provides the following benefits for taxpayers that choose to participate in the program:

* In exchange for voluntarily registering to collect and remit sales/use, income and franchise taxes in participating states by Dec. 1, 2017, states will waive liability for some or all prior tax periods (depending on the state);

* States will also waive penalties and interest for failure to file and remit taxes for prior tax periods. There are currently 25 participating states. The initiative applies to most state business taxes, including sales/use, income and franchise taxes. The initiative does not apply to merchants that have nexus in states apart from participation in a 3PL program. 

Legality of Initiative

Although merchants participating in a 3PL service technically have a physical presence in states where their inventory is held by the 3PL provider, the legality of imposing taxes on such merchants is a matter of unsettled constitutional law. Although holding such inventory technically meets the bright-line physical presence test of sales/use tax nexus established by Quill, it may not meet the “minimum contacts” requirement of the Due Process Clause.

The U.S. Supreme Court has held that states may not assert jurisdiction over nonresidents under the Due Process Clause unless the nonresident engages in repeated, purposeful contact with the jurisdiction, as ruled in Burger King Corp. v. Rudzewicz. Merely placing goods into the stream of commerce, where a merchant does not know or control where the merchandise ends up, has been held not to meet the “purposeful availment” standard of the Due Process Clause, and, therefore, can’t be a basis for imposing taxes on the nonresident, which was the precedent set in Asahi Metal Indus. v. Superior Court of Cal., Solano City.

In the Fulfillment-By-Amazon context, courts have not yet ruled on the issue of whether having knowledge of consigned inventory, but no control over the location, satisfies the purposeful availment test. It should be noted however, as ruled in Burger King, that repeated advertising or marketing efforts directed at a particular state are alone sufficient to meet the minimum contacts standard.

Peter Stathopoulos is a partner at Bennett Thrasher LLP, one of the country’s largest full-service certified public accounting and consulting firms, and leads the firm’s State and Local Tax Practice. Brian Sengson, a manager in Bennett Thrasher’s State and Local Tax Practice, contributed to this article. 

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Pockrass Steve IndianapolisRetail employers can reduce the risks and costs associated with such lawsuits by implementing well-designed wage-hour policies, training employees to comply, and punishing violators. By Steven Pockrass

Retailers are a major target of wage-hour litigation, which can result in millions of dollars of exposure. Retail employers can reduce the risks and costs associated with such lawsuits by implementing well-designed wage-hour policies, training employees to comply, and punishing violators.

This article identifies several types of policies that retailers should have in place with respect to employees who are not exempt from the overtime compensation requirements under the federal Fair Labor Standards Act (FLSA). This is not an all-inclusive list, but highlights some of the most important policies that can reduce the likelihood of non-compliance and can bolster an employer’s position when defending against wage-hour lawsuits. To further minimize wage-hour risks, employers also must consider a wide range of other issues, including the misclassification of individuals as exempt employees or as independent contractors, understanding what constitutes compensable time, and properly calculating overtime.

Employers also must keep abreast of ever-increasing state and local statutes and ordinances that are more restrictive and/or create greater compliance obligations than the FLSA. Paid sick leave, predictive scheduling, reimbursement of employee expenses, reporting pay, and premium pay for working on certain days are among the areas where states and municipalities have been particularly active. In addition to complying with the substantive obligations that these laws impose, employers also may find it necessary to amend or broaden existing policies, or to create additional policies applicable only to employees who work in certain states or localities.

Timekeeping Policies

Employers are required to maintain accurate records of the hours worked by non-exempt employees. Thus, a strongly worded timekeeping policy is important. A well-written policy emphasizes the following:

* Non-exempt employees are to record all of their hours worked;

* Non-exempt employees are not to perform any “off-the-clock work,” such as before clocking in or after clocking out; and

* Under reporting or over-reporting hours worked is prohibited.

These policies normally prohibit employees from clocking in or clocking out for one another. They also prohibit supervisors from clocking subordinates in or out. Managers and supervisors also must be prohibited from falsifying the time of non-exempt employees, from pressuring or coercing non-exempt employees to falsify their time, and from retaliating against any employee for reporting possible timekeeping violations. If a manager or supervisor does need to correct an employee’s time entry, the employer should have a system in place to document who made the change, why the change was made, that the employee is aware of the change, and that the employee agrees with the change.

Overtime Policies

The FLSA requires non-exempt employees to be paid overtime compensation when they work more than 40 hours in a workweek. Although the FLSA does not have a daily overtime requirement, several states have wage-hour laws that require overtime to be paid when an employee works more than eight or 12 hours in a day. A strong overtime policy emphasizes the employer’s commitment to comply with its overtime compensation obligations. If an employer does not want employees to work overtime without advance approval, the employer should say this in the overtime policy. However, if an employee does work unauthorized overtime, the safest approach is to pay the overtime and discipline the employee.

Break and Meal Policies

Laws requiring breaks and meals vary from state to state. Although the FLSA does not require employers to provide breaks, other than for minors, it does require that short breaks of 15 minutes or less be treated as compensable work time. Uninterrupted meal breaks of at least 30 minutes may be treated as non-compensable under the FLSA, as long as employees are completely relieved of all duties.

Accordingly, employers who provide uncompensated meal breaks of at least 30 minutes need to include language in their policies prohibiting employees from performing any work during their meal breaks. Employees also should be informed in writing regarding the steps they need to take with respect to time reporting in the event they are unable to take a full, uninterrupted meal break.

Time and Payroll Record Review Policies

A policy requiring non-exempt employees to review and sign off on their time records every day or week is not a panacea, but having a record of such sign-offs can be very valuable during litigation. The same is true for policies requiring employees to review their paystubs or direct deposit statements upon receipt and to immediately report any errors.

Training and Training Records

Although the creation of strong policies provides a starting point, training both regular and seasonal employees on those policies is an important second step. Training should not be limited solely to onboarding. When current policies are updated or new policies are added, employers may want to provide updated training in addition to communicating the policy change/addition. Refresher training on existing policies also is valuable for litigation purposes, as it makes it more likely that employees will have attended the training one or more times.

Employers should maintain records of who attended each training, who conducted the training, and what was actually presented during the training. If employees are required to acknowledge receipt and understanding of a policy during onboarding or as part of other training, those acknowledgements need to be kept in a secure location but also need to be easily accessible in the event of litigation.

Policy Enforcement

During litigation, employers often are challenged to show that their practices are consistent with their policies. To demonstrate a culture of compliance, employers must take prompt and forceful disciplinary action against managers and supervisors who engage in any sort of time shaving practices, who pressure or encourage employees to falsely report their time, or who turn their heads when others engage in policy violations. In addition to consistently enforcing their policies, employers also should have systems in place to document such enforcement.

Steven Pockrass is chair of the Wage and Hour practice group at Ogletree Deakins, an international labor and employment law firm representing management. Pockrass may be reached at steven.pockrass@ogletree.com.

kathleen 2Omnichannel retailers have the advantage over their single channel competitors. But omnichannel pricing can be a challenge. By Kathleen Egan

Sixty-two percent of shoppers now expect omnichannel capabilities from retailers – and they have more information than ever at their fingertips. Shoppers today can compare products and prices in the aisle or on their couch, and even the smallest discrepancy could lead them to choose a competitor over you. It’s a tall task, but large-scale retailers can improve their pricing while providing a more cohesive customer experience. Here’s your definitive guide.

How to determine your omnichannel pricing strategy

There are three basic ways to approach omnichannel pricing:

1. Uniform pricing is exactly what it sounds like: providing one price, no matter the channel. This strategy is best for providing a unified customer experience, where brand equity and product quality are more important than the specific channel.

2. Channel-specific pricing starts with taking an inventory of where you sell, the respective customers, and their shopping habits (elasticity). Amazon, for example, requires that list prices be on-par or below prices posted elsewhere. Of course, there’s a fine line between helping and hurting your brand image with channel-specific pricing. Only sell into channels that protect and preserve your brand and customer experience. Brands and retailers that sell on many channels may consider using homepage ads, email newsletters or social media to drive shoppers to their most profitable channel.

3. Hybrid pricing is a combination of the two, varied along a wide spectrum. When determining your strategy, consider value-adds like free gifts, shipping options and rewards programs. Ultimately, the right omnichannel pricing strategy for you is the one that upholds your brand value and increases your bottom line.

How to get omnichannel pricing right

Once you set your omnichannel pricing strategy, you must keep it in check. One way is with a pricing solution that allows for intelligent price and promotion optimization and testing. Should market conditions change, retailers can analyze data from these sources to tweak pricing strategies in real-time.

Speaking of data, analyze past years’ pricing and promotional trends for you and your competitors. Whenever possible, get these insights in real time, or risk your competitive edge. Scrambling to update pricing across your many selling channels while falling behind competitors is one of the many omnichannel pricing pitfalls.

Finally, account for regional differences. International retailers know this well. Winter in Canada is summer in Australia, so heavily discounting swimsuits globally will destroy margins. For a robust omnichannel pricing strategy, consider season, demand, buying habits, competitive offerings, inventory levels, and more for any given region. Manage this scientific process internally with a dedicated team or outsource to a third party re-pricer.

How to police your omnichannel pricing

The line between brand and retailer is blurring. Digitally Native Vertical Brands (DNVBs) like Warby Parker and Bonobos now have a brick-and-mortar presence and sell direct-to-consumer.

Today, these brands must not only set their omnichannel pricing strategy, but also protect it wherever their products are sold. Minimum Advertised Price (MAP) violations are rampant, and it’s nearly impossible to keep up with reseller pricing manually. Even more complex, resellers may hold site-wide buy one, get one or other promotions that impact the final sale price of products.

Historically, retailers have had very little incentive to police pricing infractions on brands. Instead, brands should invest in automated MAP monitoring. MAP abuse impacts brand image, retail value and margins for resellers. While marketplaces and unauthorized sellers are the most common perpetrators, even authorized resellers are subject to frequent MAP abuse.

Final thoughts

According to Accenture: “Many retailers have reached a false state of omnichannel comfort. With many retailers having invested in some level of omni-channel capabilities, it may seem they are far along in their omnichannel initiatives. Yet customer expectations are constantly increasing." Pricing optimization is an ongoing process – especially for omnichannel. Set your strategy, and monitor and police your prices on demand, or your competitors will.

Kathleen Egan is vice president of customer success at Wiser. Wiser collects and analyzes online and offline data with unmatched speed, scale and accuracy for brands, retailers and more.

Jelinek Keith HorizontalBased on its recent survey of over 100 retail executives, Berkeley Research Group predicts another year of moderate holiday sales growth and aggressive discounting and pricing. By Keith Jelinek

Executives in the October BRG survey show a cautious optimism for their companies and retail segments when it comes to holiday sales expectations: 46 percent foresee slight increases for their retail segment; 39 percent expect a similar increase for their own company. Approximately 25 percent see sales declines, with about 17 percent expecting flat holiday sales. But promotional activity has the potential to materially impact retailers.

Over the last several years, holiday sales have been characterized by heavy promotions as retailers have fought to grab their share of consumers’ holiday spending. In the BRG survey, executives indicated that they anticipate a more promotional holiday season in 2017; 64 percent expect promotional activity to play a more prominent role in driving holiday sales in 2017 compared to last year. A number of factors are likely to drive high promotional activity during the 2017 holiday season:

* Weather: Unseasonably warmer weather has created excess inventories that retailers need to move.

* Industry Distress: Many retailers enter the holidays with soft sales in the late summer and early fall and will be aggressive with promotions as they seek to clear inventory to generate cash.

* Consumer Expectations: A record number of store closings has conditioned consumers to buying at large discounts. Consumers will be looking for the type of discounts they’ve seen throughout the year from going-out-of-business sales.

* Long Shopping Season: In 2017, there will be five shopping weekends instead of four after Thanksgiving, and Christmas day falls on a Monday. Shoppers may wait until the last two weeks of December, leading to a highly promotional close to the holiday.

Retail Implications – Call For Action

Online sales will drive holiday sales again in 2017, but the price to retailers will be reduced margins. Shoppers will find great buys both online and in-store as holiday promotions begin to roll out. We expect online sales to increase by approximately 15% this holiday season, but that comes at a cost to bricks-and-mortar stores.

Retailers are approaching the holiday with anticipation and trepidation, and expect modest sales growth this year, but that’s far from the whole story. Given the calendar, holiday success will likely be driven by the final two weeks of the season. Achieving higher top-line sales will likely require added promotional activity, along with increased execution and complexity costs.

Executives sent a clear signal that promotional activity will be higher this year, and this message crossed retail segments. Through the holiday sales period, success will hinge on retailers’ real-time agility. Retail teams can still take key actions to drive a profitable holiday season:

1. Manage store labor effectively; monitor and adjust as the holidays progress. Traffic will peak on Dec. 22 and 23—retailers must determine which actions can be put into place to get customers in and out of the store quickly.

2. Monitor seasonal sell-thru daily; in retail, the first markdown is the best markdown.

3. Fine-tune merchandise allocation adjustment; ensure product is placed in the best stores.

4. Review e-commerce free-shipping thresholds and determine how late in the season the supply chain can offer guaranteed delivery windows.

Retail sales increases will likely come at the expense of increased profitability, as added promotional activity and complexity are required to generate top-line sales. This dynamic will not just impact retailer success during the 2017 holidays, but will likely lead to further retailer challenges in 2018.

Keith Jelinek is a Managing Director at California-based Berkeley Research Group where he is a member of the Retail practice. For more than 35 years, he has led and advised Fortune 100 retail companies C-level executives. 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position or policy of Berkeley Research Group LLC or its other employees and affiliates.

RETAIL SOLUTIONSParcel lockers provide customers with a free, convenient delivery option and easy returns process. By Bianca Herron

Since Amazon joined the retail industry, the company has been pushing the envelope. First there was two-day shipping, which was an amazing breakthrough for customers. Now, national retailers like Wal-Mart and Best Buy are making this delivery service commonplace.

With Amazon’s introduction into the parcel locker sector, now is the time to jump into this convenient delivery and returns service not only to compete, but also to save money, according to Vice President of Product at ProShip Inc. Tim Casey.

“Amazon leads the curve in the retail industry,” Casey says. “With the company introducing its own parcel lockers, it’s vital retailers do the same. Retailers are able to customize parcel lockers with their own brand and a configuration that works for their parcel sizes.

“Not only will retailers benefit from further brand recognition, but customers can also have the added convenience of picking up and returning their orders on their own time when it’s convenient for them,” Casey continues.

A “Win-Win”

Parcel lockers provide customers with a free, convenient delivery option and easy returns process, Casey adds. According to UPS, more than half of shoppers are interested in an alternate delivery location with extended hours and lower fees, with 35 percent of these shoppers preferring parcel lockers.

With parcel lockers, customers receive a notification via email or SMS message with a one-time PIN code or QR code to retrieve their order. The returns process is just as easy, Casey says, adding that customers simply drop off their returns at a parcel locker station by using the retailer’s return label.

“All they need do is scan the label and then place the parcel into the locker that opens,” he explains. “The best part is that the convenient delivery service can be placed inside or outside the store. In fact, placing parcel lockers inside or adjacent to a brick-and-mortar store can increase in-store foot traffic.

“This is a win-win for retailers and for customers who enjoy the additional in-store shopping experience after picking up their order, as well as the convenience and cheaper delivery option of parcel lockers,” Casey adds. “According to the International Council of Shopping Centers, during the 2015 holiday season, 32 percent of shoppers purchased an item online and then picked it up at a brick-and-mortar store.

Of those that used the buy online, pick up in-store program, 69 percent purchased additional items while picking up in-store and 36 percent made another purchase in an adjacent store, Casey notes. “The numbers speak for themselves, but ProShip’s Packcity Intelligent Parcel Lockers can also offer reporting and metrics capabilities to prove it,” Casey says. “Although parcel lockers can offer retailers numerous benefits, many executives want to see the numbers.”

Packcity Parcel Lockers offer reports and metrics on a number of key performance indicators including occupancy, turnover, pickup times, parcel size and more, according to Casey. “Using these reports, retailers can determine the parcel locker station’s return on investment as well as the need for additional parcel lockers on site,” he explains.

Reducing Costs

According to Casey, many major retailers offer free final-mile delivery services that can be expensive to compete with, especially for small to mid-sized retailers. That is why retailers should consider adding parcel lockers to their list of delivery options.

“Not only does this solution provide a competitive advantage, but also parcel lockers save retailers money by significantly decreasing freight costs,” Casey says. “Retailers can ship bulk orders to parcel lockers instead of shipping hundreds or thousands of small orders to each residence.

“In fact, retailers can use their own transportation and combine online orders with other deliveries that were already on schedule to be shipped to the store, saving even more on shipping costs,” he adds.

Ultimately, parcel lockers give e-retailers a competitive advantage by providing a function similar to a service desk in a brick-and-mortar store, with the exception of having to hire employees and excluding lengthy lines. “Not only are parcel lockers another delivery option for customers’ online orders, but they also allow customers to return their order in three simple steps,” Casey concludes. “Customers love the added benefit of visiting their favorite e-retailer’s parcel locker station just down the road from where they live.”

Tim Casey is vice president of Product at ProShip Inc., a Neopost company, and a global provider of logistics software and product solutions including enterprise-wide, multi-carrier shipping and manifesting software, automated packing solutions and intelligent parcel lockers. 

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