E-Commerce and the Impact of South Dakota v. Wayfair

The North Texas industrial market continues to be an attractive destination for e-commerce. This cycle has seen blue-blood and trend-setting online retailers (Amazon, Wayfair, Stitch Fix, etc.) move here in droves to meet their ever-growing distribution needs. These companies have been a force behind DFW’s unprecedented development and record absorption. Looking to the future, investor optimism remains high anticipating extensive growth to our industrial hub, largely because of e-commerce distribution needs.

Relocating or opening a new distribution center is a high-level decision made by chief management. As an industrial broker, it is essential to hone the skill set required to meet the demands of your e-commerce client’s but knowing what is impacting their business beyond real estate is just as important in gaining their trust.

South Dakota v. Wayfair (2018) was the landmark Supreme Court decision that ruled states may charge out-of-state sellers to collect sales or use tax on purchases made, even if the seller does not have a physical presence (nexus) in that state. The ruling overturned Quill Corp v. North Dakota (1992) which prohibited states from collecting tax from retailers on mail-order or internet sales to their residents unless the company had a physical presence in the state.

In the 26 years since the Quill Corp v. North Dakota decision, the volume of electronic interstate transactions has skyrocketed. E-commerce has disrupted traditional retail, driving 1992’s giants to bankruptcy, and in 2017 alone states lost an estimated $13.7 billion in annual tax revenue from online sales (U.S. Government Accountability Office).

The ruling of South Dakota v. Wayfair is a shift from a physical presence test to an economic-based test. In doing so, South Dakota set the bar for establishing economic nexus as exceeding 200 customer transactions or revenues exceeding $100,000. Once economic nexus is established, out-of-state online sellers are legally obligated to collect and remit the tax to the state.
As of January 2019, over 30 states have passed new legislation establishing their own tax laws on interstate online sales, most of which mirror South Dakota’s threshold. With that said, as time passes and more and more states create their own laws, e-commerce companies may face a complex web of tax law requiring steep investment in cutting-edge software to navigate the intricacies of their customer’s different tax jurisdictions.

 

Johnny Anderson – Johnny Anderson, an associate with DFW Lee & Associates, specializes in tenant representation, institutional project leasing and investment sales in Dallas/Fort Worth, and has assisted end-users of industrial warehouse, distribution and commercial office space in over 20 states and throughout North America.

To read more about Johnny visit our website.