Commercial Investment Real Estate September/October 2018 | Page 32

Main Street Win
Reversal of the e-commerce sales tax loophole benefits
brick-and-mortar retail. by Elizabeth Vincent
state and local governments alike, bringing similar taxes to
online and brick-and-mortar transactions.
In June, the U.S. Supreme Court issued a long-awaited
decision in the case South Dakota v. Wayfair Inc., holding
that states have the authority to tax online purchases even
if the retailer does not have a physical presence in the state.
The South Dakota law allowed state sales tax to apply
to online transactions from retailers with more than 200
annual transactions or $100,000 in sales per year in the
state. The opinion by Justice Kennedy, and joined by justices
Thomas, Ginsburg, Alito, and Gorsuch, overturned a 1992
decision, Quill Corp. v. North Dakota, requiring retailers to
have a physical presence to mandate the collection of state
sales taxes on purchases.
When Quill was decided, the Supreme Court was not
even addressing online sales — these were still a figment of
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September | October 2018
most Americans’ imaginations. In 1992, less than 2 percent
of Americans had internet access and very few could imag-
ine how quickly our economy would transform to include
digital purchases. With the revolution in e-commerce, the
challenge by Wayfair, Overstock.com, and Newegg to the
South Dakota law provided a timely opportunity for the
court to revisit the physical presence requirement that has
had its share of critics over the past 26 years.
Physical Presence Requirement Overturned
Quill decided that merchants lacking a physical presence in a
state were exempt from having to pay a sales tax in that state.
The Quill court, in addressing purchases through mail-
order businesses, did not think that mailing goods across
state lines was significant enough a nexus, under the Com-
merce Clause, to allow taxation without a physical location.
Times have changed. In the Wayfair opinion, Justice Ken-
nedy used the example of two different online furniture
COMMERCIAL INVESTMENT REAL ESTATE
A
recent court decision is a win for
commercial real estate, brick-and-mortar businesses, and