The Supreme Court’s June 21 South Dakota v. Wayfair, Inc., ruling that the states can require most online retailers to collect and remit sales taxes marks the end of a long battle — but not the end of the campaign.
Now the effort enters a new phase as ICSC works with states to push updated sales-tax collection policies, says Jennifer Platt, ICSC’s vice president of federal operations and the head of the Marketplace Fairness Coalition.
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 failed to move forward with these measures. ICSC and its allies also threw their support behind the South Dakota case, along with 41 states, the latter arguing that they were losing billions in uncollected sales-tax revenues.
The ball is now in the states' courts to establish any provisions that would, for instance, exempt small retailers from the expense of managing such tax filings throughout every state, says Herb Tyson, ICSC's vice president of state and local government relations. ICSC is advocating for states to follow the South Dakota blueprint, which draws the line at 200 separate transactions — or $100,000 in in-state sales, Tyson says.
Roughly 20 states already have an economic-nexus model in place that, under the 1992 Supreme Court ruling Quill Corp. v. North Dakota, permitted them to require only those online retailers with a physical presence in-state (a store or a warehouse, say) to collect and remit taxes. In April Oklahoma enacted a law requiring online sellers to collect sales-and-use taxes on goods purchased and to give notice to consumers that such a tax is due. The law applies to aggregate sales exceeding $100,000 and is set to take effect June 1, 2019. Georgia approved a measure requiring online retailers that generate either $250,000 in sales or complete 200 transactions to begin charging sales tax on goods. Kentucky addressed e-fairness in its latest tax-reform package, stipulating that if the Supreme Court overturned its earlier decision, the state could immediately require such sales-and-use-tax collections.
"States that aren't in the process of doing this probably have to do a little bit of tinkering to figure this out," said Tyson. "We will be aggressively encouraging each and every state to get their ducks in a row and charge sales tax where due."
Before the ruling, states were passively relying on online shoppers themselves to pay the taxes voluntarily, though few did, and many online sellers openly promoted that loophole, which made their goods about 3 percent to 10 percent cheaper, depending on state tax rates.
South Dakota estimates that it is losing some $58 million annually in tax revenue from sales by out-of-state businesses that do not collect the tax. Since South Dakota has no state income tax, sales-tax revenue constitutes roughly 60 percent of its annual funding for roads, schools, bridges, police and the like.
The additional tax revenue will prove timely for hundreds of capital-challenged communities. When Quill was issued in 1992, online sales accounted for less than $400 million annually. For 2019 U.S. e-commerce is projected to approach some $500 billion.
Questions remain about the ruling's impact, including whether the states can impose the new tax-nexus ruling retroactively, even though the High Court established that South Dakota could not. States could conceivably claim that historical tax liability existed from the first year that a business made significant sales, depending on the breadth and interpretation of their “doing business” statutes, analysts say.
For large national omni-channel retailers, such as Best Buy, Target and Walmart, "the ruling is nearly a nonevent: They are already collecting sales tax," said a Cushman & Wakefield report co-authored by Brown and Ben Conwell. "With a physical presence in almost all states, the ruling changes nothing for them."
Of the 20 top U.S. internet retailers, "19 were already collecting local state sales taxes when SCOTUS made their ruling," said Brown. "So the impact will mostly be on a few smaller, pure-play e-commerce players that were late in shifting their distribution strategy from a focus on tax-advantaged states to one providing the most delivery speed to consumers."
The decision's author, Justice Anthony Kennedy, suggested earlier this year that it was time to reconsider the 1992 Quill ruling, given the technological advances and economic changes that have occurred since. Joining Kennedy in the majority were Justices Clarence Thomas, Ruth Bader Ginsburg, Neil Gorsuch and Samuel Alito.
“This decision was a major victory for the industry, and in particular for our members who have worked so hard over the years on this issue,” said Platt. “Looking ahead, ICSC will focus on helping and encouraging states to pass responsible legislation that will finally create that level playing field.”
By Steve McLinden
Contributor, Shopping Centers Today