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On June 21, the Supreme Court issued its holding on South Dakota v. Wayfair, Inc., reversing a long-standing rule on online sales tax collection in a decision that’s a win for real estate, brick-and-mortar retailers and the states. The case dealt with whether states can require out-of-state online retailers to charge and remit sales tax on purchases made by residents. Upending a long-held precedent, the Court ruled that the South Dakota law in question, which did just that, could stand, and that the previous doctrine controlling this issue no longer applies.

The Wayfair decision reverses a 1992 Supreme Court case, Quill Corporation v. North Dakota, which held that states couldn’t require remote sellers (at the time, catalog retailers) to collect state sales tax unless they had a “nexus” to the state via a physical presence within its borders. The decision also stated that “Congress may be better qualified to resolve [the problem],” but in the 26 years since then, Congress failed to do so. This is despite bipartisan legislation being introduced each Congress. The National Association of REALTORS® (NAR), a member of the Marketplace Fairness Coalition and advocate for internet sales tax fairness, has long supported these measures. Though Congress came close at times, it was unable to get legislation on this issue signed into law. In the time that passed, as e-commerce grew, the issue only became more pronounced.

In the absence of Congressional action, the Wayfair decision opens the door for other states to enact similar laws to South Dakota’s, which will go a long way toward leveling the playing field between retailers regardless of where they exist. The majority opinion, written by Justice Kennedy, reflects on the changing nature of commerce in the 21st century, declaring that the physical presence test is out of date and that “economic and virtual contacts” with a state are enough to satisfy the nexus requirement.

For commercial real estate, the states and NAR, which have long been advocating for sales tax parity between online sellers and brick-and-mortar stores, this ruling is a victory. Main Street retailers are important to the communities they serve and are a crucial sector in commercial real estate. Competing against online retailers that offer goods at seemingly lower prices due to not charging sales tax has hurt their ability to grow, and, in some cases, resulted in them going out of business. In addition to leveling the playing field, the ruling will help states, which have struggled to make up for lost sales tax money, estimated to be billions of dollars each year. That money can be reinvested into infrastructure, schools, public works projects and other areas that make communities attractive and increase property values.

This ruling still limits states’ authority. The South Dakota law only requires sales tax collection by sellers delivering more than $100,000 of goods or services into the state, or engaging in 200 or more separate transactions for the delivery of goods or services per year. In addition, the decision included the requirement of “economic or virtual contacts,” which will likely be a source of debate between states and online retailers.

Overall, the Wayfair decision is a positive step on an issue that’s been stagnant and harmful to commercial real estate for many years. NAR joined two amicus briefs that were sent to the Court for this case, supporting the position, which ultimately prevailed. NAR is pleased with how the Supreme Court ruled, and looks forward to seeing Main Street businesses once again competing on a level playing field with e-commerce retailers.

Erin Stackley is a senior policy representative for Commercial Issues for the National Association of REALTORS®.

This column is brought to you by the NAR Real Estate Services group. For more information, please visit www.nar.realtor.

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