Sales Tax numbers!
In this morning’s (early!) Q3 trading update Cettire furnished us with numbers for their sales taxes over the last 9 months - collections of A$18.7m and payments of A$17.1m. I’m only going to focus on the sales tax disclosures in this piece - Further analysis may follow over the weekend, there’s certainly lots to digest. And please read this important note1
Sense Checking the Numbers
In order to see if these figures look right relative to US sales, we can perform a few quick and dirty2 calculations to see if these numbers are close to what we should expect if Cettire was continuously collecting the correct taxes over this 9mo period.
Cettire did not quote US net sales for the quarter, but if we use the H1 proportion of 54% of global net sales we get to ~A$103m for the quarter. Adding H1 sales to this we get 9mo US net sales of ~A$295m.
This gives us an average US sales tax rate collected of 6.3%.
So naturally we need to compare this to the average combined sales tax rate in the US. Taking the sales tax data from the Tax Foundation and 2023 state economic/population data from the Bureau of Economic Analysis, whether we weight the blended sales tax rate by population or by personal income we get to a weighted average figure of 7.5%. (calculations in footnote)3
Therefore we should expect Cettire's sales tax collections to be 20% higher than reported.
Miu Mius in Montana, Oscar De La Rentas in Oregon
Another sense check we can use is comparing this rate of 6.3% to the tax rates payable in each of the states. If 6.3% is the appropriate number then given higher tax rates in the larger states, we should expect much higher sales in the low tax states.
What we find is that of the 50 states + DC, only 14 states + DC have a combined rate lower than 6.3%. These states account for only 15% of the population and personal income of the US as a whole.
If we are to believe that the correct amount of sales tax has been paid, then we also need to believe that these states contribute a seriously outsized amount of Cettire’s US sales relative to their size, and equivalently that states like California (combined rate 8.9%) Texas (8.2%) and New York (8.5%) are seriously underrepresented in the luxury fashion market.
All Present
The Company confirms it is registered for sales taxes in these states and is in good standing. The Company confirms it has been collecting and remitting sales taxes as normal in these states.
The company is doubling down on the strategy of using the present tense whilst not confirming prior registration and good standing and continuous compliance.
In addition, the Company confirms it is registered for sales taxes in the vast majority of US states which have a sales tax regime and these states, together with states which do not have a sales tax regime, accounted for approximately 99% of the Company's US sales revenue in Q3. The Company continues to take steps to register in additional states as and when the obligation arises (for example, Cettire reaches the applicable state-based registration threshold).
Present tense again - what about continuous compliance over prior periods?
Using Sales Tax Institute data we can see that the vast majority of states use US$100k in sales as the registration threshold, and the earliest period over which this is measured is over the previous calendar year. In CY22 Cettire had US revenues of over US$115m. That $100k threshold represents 0.086% of US sales. The least populous US states that have a sales tax regime are Wyoming and Vermont, with 0.17% and 0.19% of the US population there. Now maybe the illustrious persons of these states are not big Cettire users, but the point is that it’s hard to understand where Cettire should not have been registered for sales tax going back to at least January 2023.
We are the 99%
Cettire’s claim that are presently registered in states covering 99% of US sales in Q3 also fails to reassure. Not only does this mean that they are still not registered for sales taxes in states covering 1% of their sales, it does not go as far as to say that they were registered for, collecting and paying taxes at the beginning of Q3, let alone over previous periods when Cettire was obliged to. The flurry of activity in Texas after questions were raised in these pixels does not serve to reassure Cettire was.
Missing the mark
As a reminder - when we ordered to Texas no sales tax was charged.
The checkout for California yielded no tax.
If today’s statement from Cettire was meant to reassure that they have been in continuous compliance with their sales tax obligations over prior periods - or even this period, this observer thinks they have missed their mark.
For the avoidance of doubt I am making no suggestion of any deliberate tax evasion by Cettire or any of its officers. Whilst every care has been taken to ensure accuracy I make no warranty that there are no errors. Nothing in this article is to be taken as advice or an inducement to deal in securities. I’m a trader and you should assume I have positions in any stocks mentioned, and will actively deal in these stocks.
These calculations are necessarily quick and not intended to be exact. We’re trying to check the magnitudes.