Posted on July 2, 2018
The U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that states may collect sales taxes from online retailers, even if those sellers do not have a physical location in the state. That reverses a decision the Court had made in 1992 in Quill Corp. v. North Dakota.
NAIOP supports the collection of existing sales and use taxes from online retailers when these taxes are already owed to state and local governments, including backing legislative efforts in Congress that would specifically empower states to do so. Not collecting these taxes puts brick-and-mortar retailers at a disadvantage to out-of-state vendors whose purchasers can avoid taxes, as the Court pointed out in its decision.
“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” Justice Anthony Kennedy wrote in the decision. “These critiques underscore that the physical presence rule, both as first formulated and as applied today, is an incorrect interpretation of the Commerce Clause.”
NAIOP, along with several other real estate organizations, submitted an amicus curiae brief arguing that the Quill decision harmed brick-and-mortar retailers. The NAIOP brief explained that without a mechanism that requires vendors to collect taxes owed, states will continue to lose billions of dollars each year. Budget shortfalls often force states and local governments to boost property taxes.
In the wake of the Supreme Court decision, Congress could provide clarity by acting to change tax law, an approach suggested by Chief Justice John Roberts. For example, the “Main Street Fairness Act” would authorize states that have met federal criteria to require internet retailers to collect sales taxes. The Senate passed this NAIOP-supported bill in 2015, but the House has failed to bring a companion bill to the floor for a vote.
With the Supreme Court’s decision, many states are now free to pass legislation enabling collection efforts of online sales taxes from out-of-state vendors.