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After 20+ Years, the Supreme Court Finally Levels the Playing Field on Sales Tax Collection!

United States Supreme Court Building

As many of you know, for the past decade I have been the lead volunteer lobbyist for our trade association, The International Council of Shopping Centers (ICSC). In addition to being a member of ICSC’s Board of Trustees and serving on its Executive Board, I have been the Chair of all Government Relations and Advocacy for ICSC since 2008. Prior to that, for close to 20 years, I have been involved in volunteer advocacy on behalf of the industry at both the state and federal level.

While we have advocated for many issues of importance to the retail industry over my tenure, none has ever been as long or as difficult than securing a level playing field for our retailer clients with e-commerce competition over the obligation of the retailer – whether brick and mortar or web – to collect sales and use taxes owed by the consumer for purchasing goods and services.

Yesterday, the Supreme Court of the United States (SCOTUS) issued a decision in a case called Wayfair vs. South Dakota, which overturned prior precedent and set the ground rules for leveling the playing field between Internet and Brick and Mortar by allowing any state that wants to require that all sellers collect the sales tax that’s owed by the consumer in any taxable transaction.

The issue is a little technical so bear with me as I try to explain it. Sales and use taxes are NOT a tax on a retailer. They are taxes on the consumer or the purchase of a good or a service. The consumer is the one who has to pay. To make things easier, states impose an obligation on retailers to collect and remit the sales tax on behalf of the consumer. There are NO federal sales and use taxes. Sales and use taxes may only be imposed on consumers and residents by state and local jurisdictions. As of today, 45 states and the District of Columbia have a state constitution that imposes a sales tax. Five states do not (Alaska, Delaware, Montana, New Hampshire and Oregon). Sales taxes may vary in amount BOTH from state to state and INSIDE a given state. Each state sets there own rate, and local municipalities inside those states can add their own sales tax as well (this is why the sales tax on the same item might be different from state to state and between cities in a state. White Plains and Yonkers right here in Westchester charge different rates for example). Finally, different states elect to charge sales tax on certain goods and services but not others.

In many locales, sales taxes are the largest single source of revenue for the state or municipality to operate themselves. For example, South Dakota has NO state income tax. Virtually all of its revenues to operate come from sales taxes. Similarly, the City of Scottsdale, Arizona depends on sales tax revenues for over 60% of their revenues. This is what these places use to build and maintain roads, provide police and fire safety, water and sewer, etc.

So what happened this week? For the past 20+ years we have seen the rise of e-commerce. E-commerce sales now total over $450 billion per year and represent somewhere between 10 and 13 percent of all retail sales in America. Pursuant to a 1992 Supreme Court ruling in a case known as Quill, states could only require retailers to collect sales tax IF they had what was called physical nexus presence in the state. So what the hell is that? That came to mean that you had to have something real in the state to be require you to collect sales tax in it. A store, an office, a warehouse, employees, etc. Otherwise, you didn’t have to collect. Many e-commerce companies ether didn’t have physical presence in a state or sought elaborate ways to work around it. As a result, most did not and many still do not collect sales tax. In fact, some large e-commerce retailers like Wayfair even advertise sales tax avoidance on their websites and in TV commercials.

Technically, the purchaser was supposed to actually file a special tax return, report all their purchases that where the tax wasn’t collected and remit that to the state tax authority. How often did people do that? Probably never. So over time as e-commerce grew and grew, more and more sales tax revenue essentially disappeared. States ran short of money to provide basic services. And those retailers that didn’t have to collect enjoyed an increasing advantage over those who did. Who always had to collect? All of our tenant clients (expect those in the states without a sales tax).

For example, the incentive to purchase large ticket items from someone who wasn’t obligated to collect sales tax was immense. People could go into Best Buy for example checkout a multitude of HD TVs, ask tons of questions about a $2,000 product, whip out their phone and order it online and save as much as $180 in some jurisdictions. Same product no difference. And to add insult to injury, Best Buy was providing the customer service and not getting the sale. This became known as showrooming.

For 20 years, ICSC and other groups (most notably two retail trade associations National Retail Federation [NRF] and Retail Industry Leaders Association [RILA]) have worked to try and get the federal government/congress to pass a law to deal with this inequity. Over that period of time, we worked with numerous stakeholders, formed an immense coalition of stakeholders, raised and spent tens of millions of dollars, worked with large groups of bipartisan lawmakers, and sought support from five different presidents to pursue our goal.

We were stymied by various highly partisan factions in the political world. Mostly, we were opposed by anti-big government, anti-tax conservative groups as well as a cadre of technology and e-commerce advocacy groups and companies. Our biggest opposition came from Ebay,, Heritage Foundation/Action, and Grover Norquist who heads Americans for Tax Reform. Ultra-conservative groups opposed us to try and deny states any revenue at all to make them shrink themselves. We received a big boost several years ago when Amazon approached us and offered to come on board on our side after violently opposing us for years. Despite this change, we were unable to complete a legislative fix with the highly dysfunctional Congress we have in Washington.

Several years ago, working with RILA, Amazon, Best Buy and others; ICSC developed a parallel path to try and level the playing field. While continuing to seek a legislative compromise, we simultaneously looked for the opportunity to work with a state to formulate a state sales tax law that would directly challenge the Quill decision, and hopefully provide a pathway to give SCOTUS the option of revisiting Quill.

We were helped along when Associate Justice Anthony Kennedy provide commentary in a 2015 decision on another matter that he would welcome an opportunity to revisit the Quill decision. We found a partner in the governor and attorney general of the state of South Dakota which was highly dependent on sales tax revenues and had very streamlined legislative and judicial processes that would allow for the most rapid docket to SCOTUS.

After South Dakota passed a law expressly designed to challenge Quill (ICSC helped draft it), things moved quickly leading up to SCOTUS agreeing to hear the case this past January, and holding oral argument in April of this year. Yesterday, they handed down their decision which you can read here:

In a 5-4 decision, with Justice Kennedy writing for the majority, SCOTUS provided a clean overturn of the Quill decision. This decision clears the path for each state with a sales tax to review their collection codes, and to clean them up to compel all non-brick and mortar sellers to collect sales taxes from consumers on purchases just as our retailer clients do. I expect the new laws at the state level to roll out over the next 6-12 months. The net result will be the level playing field we have sought for two decades so that our clients are not placed at a competitive disadvantage unfairly.

I’ve been working as an entrepreneur for 34 years. I’m not sure I’ve ever been a part of something that took this long. Along the way, I’ve made some incredible friends and contacts (I met our primary client at Walgreens through this process as well as the senior most real estate executives at many retailers with whom we’ve gotten to do a lot of business), and also some enemies. To finally get this done is immensely satisfying. It was a team effort of so many people, and represents one of the most successful things ICSC has ever accomplished.

I want to thank everyone at Team DLC for the support you provided as I worked on this. I know it made me less present at DLC at times, but you all took up the slack that let me dedicate the time to this it required. Onward to a #levelplayingfield and even more #success.

Thanks for all you do,


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