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Supreme Court sales tax ruling could be commercial windfall

Posted by Editor on June 26, 2018
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Commercial real estate practitioners stand to benefit from a Supreme Court ruling Thursday that gives Florida and other states the authority to make online retailers collect sales tax.

The decision, stemming from online retailer Wayfair Inc.’s lawsuit against South Dakota over such a state law, potentially erases internet sellers’ advantage over brick-and-mortar stores, which are legally required to charge sales tax to customers. If shoppers prefer driving to the mall, the may start to do so again since online retailers have lost their tax advantage. As a result, both conventional and online retailers may put more stock in physical spaces, lending more business opportunities to commercial agents.

Before the ruling, online retailers had to collect sales tax in a state if they had a “physical presence.” As a result, some online retailers made decisions for headquarters, stores and distribution channels to avoid any physical presence so they could offer “tax-free shopping” on orders in as many U.S. states as possible.

In the court’s ruling, Justice Anthony Kennedy wrote that the current “physical presence” rule – which forbids states from requiring merchants who don’t maintain physical stores within the state’s borders to collect sales tax – has cost states up to $33.9 billion annually in uncollected sales taxes, The Wall Street Journal reports. More than 40 states and territories, as well as the District of Columbia, have pushed for the rule to be struck down since it was established in 1967.

The ruling is a major win for the National Association of Realtors® (NAR) and its commercial members, says NAR Senior Policy Representative Erin Stackley.

“The court held that the ‘physical presence’ rule is out-of-date in an e-commerce era,” she says. “[The rule] harms traditional retailers – who are the clients of many of our commercial members. … NAR has been advocating for [the rule to be dismissed] for many years in Congress and joined with a coalition of other real estate groups in support of the South Dakota law being challenged.”

Some online retailers such as already charge sales taxes – but others that don’t sometimes brag about it, Justice Kennedy wrote in his opinion. He noted that Wayfair states in its advertising that “one of the best things about buying through Wayfair is that we do not have to charge sales tax.”

Congress could have taken action on the physical presence rule at any time but declined to do so, fearful of blowback from increasing costs on consumers, according to the Wall Street Journal.

Source: “Supreme Court Rules States Can Collect Sales Tax on Web Purchases,” The Wall Street Journal (June 21, 2018); REALTOR® Magazine

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