The new ruling from South Dakota v. Wayfair Inc. overturns previous Supreme Court decisions in both National Bellas Hess v. Department of Revenue of Illinois, 1967, in which they decided a mail-order reseller was not requaried to collect sales tax if it had no physical presence in the state, and the more recent Quill v. North Dakota, 1992, in which the court reaffirmed their previous position in the digital age.
The Supreme Court’s decision in South Dakota v. Wayfair Inc., is not a national decision, applying specifically to the state of South Dakota’s sales tax law. The law has a specific threshold of $100,000 or 200 transactions annually that must be met before the state can tax the e-commerce site. Sixteen states have similar laws to North Dakota and the remaining 28 states that have sales tax are sure to follow suit, according to JLL’s Industrial Impact Series White Paper.
While many in the brick-and-mortar retail businesses applaud the decision as an effort to even the playing field between online and traditional retail, others are concerned with the negative effects the decision is sure to have on small online businesses. Small online companies, for instance, will have to keep track of 10,000 sales tax jurisdictions accounting for state and local tax laws. Small businesses that use online marketplaces such as Etsy and eBay can’t count on those marketplaces to collect the taxes for them either. At the same time, it still remains to be seen how this ruling will affect logistics spaces needs small online retailers.
The authors of the JLL report also note that the next steps will take time to materialize as either state and national legislation must be enacted, or other lower court rulings on sales tax collection will need to firm up requirements on businesses.
To some extent, it looks like we’re still in wait and see mode. On the one hand we’re looking at what the JLL report says is that small online companies will have to keep track of 10,000 sales tax jurisdictions, which seems untenable. On the other, they also write that it remains to be seen how this ruling will affect logistics spaces needs for small online retailers.
FreightWaves had the opportunity to speak with two of the report’s authors, Aaron Ahlburn and Matt Powers for clarification. Ahlburn is a managing director and director of research for the industrial property sector for JLL's Americas region. Powers is responsible for leading and growing the emerging retail/e-commerce distribution practice group.
“It creates some clarity,” says Ahlburn. “Like for Texas it’ll be collected across jurisdictions. It creates clarity for small online providers as well. Software companies can enable the huge volume of sales tax jurisdictions.”
“Some of them are already beginning those processes. It’s a bit of a moving target right now, but we’re trying to keep track of how various states are trying to move through the process. A number of trade organizations are involved as well,” according to Ahlburn.
“I do believe we’ll see pretty quick movement from the remaining states. For most states that don’t have a large ecommerce base, it’s going to be based on brick and mortar,” says Powers.
It’s also widely known that a little over two months ago Overstock.com made the somewhat surprising decision to offer voluntary internet sales tax collection regardless of jurisdiction. Does this decision influence other online businesses?
“It lowers impediments for any given company might have had moving forward. If that was ever a consideration versus one state over another that barrier is gone. That allows companies to move more freely based on site collection decisions, says Ahlburn. “From a PR perspective, by being uniform across the board you get a better ROI on your return rather than 50 different having a uniform.”
How sustainable is the model of free shipping or two-day shipping such as we’ve been spoiled by with Amazon’s Prime service?
“I don’t know that it makes it any more difficult or not. Those consumer expectations are already set. If anything, the right sales collection platform or software infrastructure is paramount because it can’t slow down that process at all. A lot of times those software solutions are making those decisions pretty efficiently. It’s about closing the transaction process and moving it to the logistics process smoothly. It’s more about the point of sale."
"This is probably a component of it, but probably the operating cost burden is more on the transportation, delivery and execution site of the fulfillment more that side,” says Ahlburn.
Overall, how significant or groundbreaking is the decision? Is it precedent-setting?
“It clears the air, but it doesn’t necessarily answer all the questions yet. States are enacting policies, but what is the next level of legislation,” says Ahlburn.
“It’s really a large versus small. It clearly sends a message that whatever their strategy was previous, this helps them see what they need to do,” Powers adds. “Where it muddies the waters is for smaller e-commerce retailers. Using software programs could be totally foreign to them. Muddy for the smaller players.”