Brick & Mortar Retailers achieve level playing field- sales tax

[Joel Owens]

The Supreme Court delivered a major victory to the retail real estate industry on Thursday, ruling that states can require most online retailers to collect and remit sales taxes. This overturns an earlier decision holding that companies lacking a physical presence in the state could not be required to do so.

The 5-4 ruling is also a victory for U.S. states, which have been deprived of billions of dollars annually that would otherwise have gone toward the construction and maintenance of infrastructure, education and other vital services.

“Today’s decision is a positive step towards creating a level playing field for retailers, and it will serve to strengthen the industry as a whole for years to come,” said Tom McGee, president and CEO of ICSC. “The physical-nexus standard hampered industrywide competition and kept valuable tax revenues from local communities. We understand this is a critical turning point in a long process, but [we] look forward to working with policy-makers and business owners to find state-level legislative solutions which promote fairness and competition.”

This most recent case concerned the constitutionality of a 2016 South Dakota law requiring out-of-state sellers with sales in excess of $100,000, or with at least 200 separate sales transactions into the state, to collect and remit sales taxes. South Dakota brought the case to the court, challenging the existing requirement that only retailers with a physical presence in a state — in the form of stores or warehouses — could be required to pay state sales taxes, as upheld in the previous Supreme Court ruling, Quill Corp. v. North Dakota, from 1992.

“Today’s decision is a positive step towards creating a level playing field for retailers, and it will serve to strengthen the industry as a whole for years to come”

Associate Justice Anthony M. Kennedy wrote the majority decision, which highlighted the problems caused by Quill and the previous standard: “ … Quill creates rather than resolves market distortions. In effect, it is a judicially created tax shelter for businesses that limit their physical presence in a State but sell their goods and services to the State’s consumers, something that has become easier and more prevalent as technology has advanced. The rule also produces an incentive to avoid physical presence in multiple States, affecting development that might be efficient or desirable.”

Associate Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch all joined Kennedy in the majority.

Jennifer Platt, ICSC's vice president of federal operations and the head of the Marketplace Fairness Coalition, says the market-distortion issue is critical. “To have the Supreme Court rule on this issue, seeing the market distortion and change in the marketplace, is clearly a very big deal for our industry,” Platt said.

Chief Justice John G. Roberts Jr. wrote the dissent and was joined by Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan.

Leveling the playing field States are now free to pass legislation requiring e-tailers to collect and remit sales taxes

ICSC and other organizations have advocated for years to have physical and online merchants treated equally where taxation is concerned, supporting legislation in Congress (most recently, H.R. 2193, the Remote Transactions Parity Act; and S. 976, the Marketplace Fairness Act), but Congress has failed to move forward with these measures.

Efforts have also been made to have states simplify their systems for sales-tax collection, but so far, only 24 states have signed on. Forty-five states currently have state sales taxes.

The ruling now opens the way for states to pass their own legislation requiring all retailers, physical and otherwise, to collect and remit sales taxes.

By Edmund Mander

Director, Editor-In-Chief/SCT

[Jon Holdman]

I do see this as a positive ruling.  I don't see it as having any significant effect on brick and mortar retailers.  And little, if any, effect on real estate.  I think it will have a positive effect for states and other tax-collecting entities.

IMHO, this is only one small factor in the decline of brick and mortar retail.  I think the most significant factor is choice.  In many cases, I can find far more choices online than at any local store.  Even if I find the same item locally its often cheaper online regardless of the sales tax situation.   Another factor is the experience.  If I go to a retail store, find what I want at a price I'll pay and its a pleasant experience I buy it.  I'm even willing to pay a little more that online, at least in some cases.  But if its a crummy experience, "hello?  hello?  anyone working here?" nope.  If I have to call to find out if they have something then traipse across town to buy it, nope.

This is really nothing new.  When I was a kid my dad had a hunting and fishing store.  They got bigger, but there came a day when Walmart opened a store nearby.  Walmart #21.  One of their reps came over and told my dad "we're going to put you out of business".  And they did kill his store.  He became more specialized and started selling at gun shows.  He ended up being very specialized and had a huge inventory of accessories, not guns.  No way would one store have survived in one location with that specialized inventory.  By traveling and selling to different sets of customers every weekend he did very well.  That's what online has become.