Retailers Push for Online Sales Tax Collection

Many in the CRE industry have complained for years that most online purchases are tax free, making it more difficult for traditional bricks-and-mortar retailers to compete.

shopping_keyboardWhen Forest City Enterprises president & CEO David LaRue was recently named chairman of the International Council of Shopping Centers at the group’s annual RECon meeting, one of the first things he did was publicly push for federal legislation regulating online sales tax collection.

Many in the commercial real estate industry have complained for years that most online purchases are tax free, making it more difficult for traditional bricks-and-mortar retailers to compete. State and local government officials contend they are losing much-needed sales tax revenue—as much as $23 billion, according to some estimates.

Known as the Marketplace Fairness Act, the legislation has been languishing in Washington, D.C., until this year. The ICSC, the National Retail Federation and the Institute of Real Estate Management, along with the National Governors Association and The United States Conference of Mayors, have all been lobbying for the legislation.
With the Senate approving it in a 69-27 vote on May 6, it has the best chance in years of becoming a law that President Barack Obama can sign, according to several commercial real estate executives. While it had a fairly smooth ride in the Senate, where Majority Leader Harry Reid bypassed the Finance Committee and took it to the floor for a vote, getting it through the House of Representatives will be a much more difficult process, they admit. The bill will have to go through the House Judiciary Committee, and Chairman Bob Goodlatte has already raised several concerns about it.

“We’re hopeful to get this done as quickly as we can this year,” said Rachelle Bernstein, vice president, tax counsel & principal lobbyist for the NRF on tax issues. “But it would be unrealistic to think that it would happen over the next month.” The bill gives states the authority to collect sales tax from online retailers that have annual remote sales of more than $1 million, regardless of location. Under a 1992 U.S. Supreme Court ruling, the current law only requires online retailers to collect taxes from consumers if they have a physical presence in the state, such as a store or a distribution center. Consumers are supposed to declare the sales tax later on their income tax, but most fail to do so.

Although it has often been called an “anti-Amazon law,” the e-commerce giant no longer opposes the legislation, partly because as it has rapidly expanded, it has been creating new distribution centers around the U.S. and would have to pay sales tax anyway. On an Internet site devoted to advocacy issuesm (, eBay says it does not oppose the legislation but rather the “current definition of a small business in the legislation, which is exponentially less than any other relevant standard for defining a small business.” It claims the bill favors large online and offline retailers and “would actually damage the competitiveness of innovative small businesses.”

But some commercial real estate executives disagree.

“I think it will level the playing field. It’s good news,” said Gerard Mason, executive managing director of U.K.-based international real estate advisor Savills. “Ultimately, it will help those retailers who might have thought they were going to go out of business because of Amazon. It gives them more strength and staying power.”
Mason believes it will also be good for retail property investors and owners.

“Retailers would be more profitable and theoretically can pay a higher rent when the time comes to renew that tenant,” he told Commercial Property Executive. “It doesn’t help directly. But indirectly and over time, it will give you a lower cap rate and make new buyers and investors more confident in the sales levels.”

Chuck Achilles, chief legislative & research officer for IREM, said his group has heard from members that it is becoming more difficult to compete with the online retailers on the sales tax issue. Members who run shopping centers say it becomes a cash flow problem.

“If you don’t make the sales, you dig yourself a deeper hole to get out,” Achilles told CPE. Smaller stores may not be able to continue their leases, leading to higher vacancy rates at shopping centers, he said. But the larger stores also contend with that problem, particularly what is called the “showroom effect,” where consumers visit a larger retailer like Best Buy to see and touch the merchandise, then go online and purchase it, thereby avoiding the sales tax.

Best Buy declined an interview with CPE, but the Minneapolis-based retailer posted a statement on its Web site saying it was encouraged by the bipartisan support the bill received in the Senate and hoped the House acts swiftly.

“This legislation does not represent a new tax; rather, it simply helps to ensure fair competition that ultimately benefits consumers and our communities. The current laws were put in place before the Internet or e-commerce existed,” the Best Buy statement reads. “Just as retail has evolved over the years, the Tax Code needs to evolve to reflect modern patterns in how consumers shop.”

Bernstein said the point of the lobbying effort is to make sure legislators, especially those who may have made anti-tax pledges, understand that these are not new taxes. She said there was some Republican support for the bill in the Senate and a “fair degree” in the House. She said many Republicans and Conservatives are waiting to see any changes the House Judiciary Committee might make.

“One of the arguments that opponents are making—more so than the anti-tax argument—has been more on the audit issues—whether it will be too much complexity for small businesses,” she said.

That is among the concerns of Goodlatte, the Virginia Republican who chairs the House Judiciary Committee. In a statement issued on May 6, after Senate passage of the Marketplace Fairness Act, Goodlatte said he believed the bill was not “sufficiently simplified yet.”

Bernstein acknowledged that because of Goodlatte’s concerns as well as other major issues facing the Judiciary Committee, such as immigration and gun control, it could take longer for the Marketplace Fairness Act to come to a House vote. But she said the NRF and other retail lobbyists are trying to meet with all 435 members of the House to explain what the bill entails.