Thursday’s Supreme Court decision granting states greater ability to collect sales tax from online purchases marks a win for Michigan’s retail community and state coffers, according to real estate executives and business groups.
The 5-4 ruling in South Dakota v. Wayfair Inc. aims to close the loophole that allowed online retailers without a physical presence in a state to withhold sales tax, instead leaving taxpayers the option to do so when they file taxes.
The majority decision, authored by Justice Anthony Kennedy, marks the culmination of a more than decade-long fight by Earl Clements and other retail stakeholders.
Clements, a senior vice president and retail team leader in the Grand Rapids office of Colliers International Inc., had taken up the fight as part of his work with the International Council of Shopping Centers (ICSC), a New York City-based trade association for the retail shopping center industry.
Clements is a former state director for ICSC and currently the association’s Michigan ambassador.
“It’s major,” Clements said of the Supreme Court ruling. “We’ve been fighting as an industry (for over a decade) to get the playing field leveled so that brick-and-mortar stores in our community that pay taxes and hire locally can compete with the internet that doesn’t pay sales tax.”
Estimates vary somewhat on how much the lost tax revenue has cost a state like Michigan. Clements said the state’s ICSC chapter estimates the figure at between $250 million and $300 million annually.
A 2016 report from the Michigan Department of Treasury put that number at closer to $500 million for the 2017 fiscal year.
Other business groups also weighed in on the decision with similar sentiments, including the Michigan Retailers Association.
“This was a major victory for brick and mortar retailers, who have had to compete with online stores selling the same merchandise for a little less because they haven’t had to play by the same rules,” Meegan Holland, the organization’s vice president of marketing and communications, wrote in a statement to MiBiz on Thursday following the SCOTUS decision. “This ruling brings commerce into the 21st century by ensuring that all retailers will be treated equally. It’s a fairness issue.”
The impact of the Supreme Court ruling on e-commerce companies remains somewhat unclear. Online retailers like Wayfair, Amazon.com Inc. and eBay Inc. saw their stocks dip on news of the decision, but some had recovered by Friday morning.
Clements argues that those large companies will experience little burden in their remitting of sales taxes to states. The Supreme Court also decision omits online retailers who deliver under $100,000 of goods or services into a state or engage in fewer than 200 transactions, meaning that small-time sellers on sites like Etsy will not have to comply with the law.
While lower costs long drove customers to buy online, a column published by Bloomberg on Thursday notes that lower prices are no longer the main driving force for e-commerce consumers.
“Increasingly, Amazon’s value proposition to shoppers is as much — if not more — about its vast selection and its speedy delivery than it is about rock-bottom prices,” Bloomberg retail columnist Sarah Halzack wrote. “This decision does nothing to alter the convenience of shopping at Amazon, meaning it leaves Amazon’s most important advantage intact.”
Local attorneys see a mix of good and bad in the Supreme Court decision, noting that the playing field will be “somewhat” leveled for businesses with a physical presence in Michigan and already paying sales tax.
Mid-sized online businesses that weren’t paying sales tax will lose based on the decision, according to Andrea Crumback, a tax attorney with the Grand Rapids-based firm of Mika Meyers PLC. And those mid-sized businesses aren’t necessarily alone, she said.
“However, the real ‘losers’ are ultimately Michigan consumers purchasing items from mid-sized online businesses because the price of online products will increase for them,” Crumback said in a statement. “The websites of mid-sized online businesses where consumers have always enjoyed not paying sales tax will now, in most instances, begin charging sales tax.”