Our Mission

Learn who we are and how we serve our community

Leadership

Meet our leaders, trustees and team

Foundation

Developing the next generation of talent

C+CT

Covering the latest news and trends in the marketplaces industry

Industry Insights

Check out wide-ranging resources that educate and inspire

Government Relations & Public Policy

Learn about the governmental initiatives we support

Events

Connect with other professionals at a local, regional or national event

Virtual Series

Find webinars from industry experts on the latest topics and trends

Professional Development

Grow your skills online, in a class or at an event with expert guidance

Find Members

Access our Member Directory and connect with colleagues

ICSC Networking Platform

Get recommended matches for new business partners

Student Resources

Find tools to support your education and professional development

Become a Member

Learn about how to join ICSC and the benefits of membership

Renew Membership

Stay connected with ICSC and continue to receive membership benefits

C+CT

Every state with sales tax now collects it for online sales. Has it worked?

June 30, 2021

This morning, Missouri Gov. Mike Parson signed an online tax bill, three years after the U.S. Supreme Court ruled states can collect sales tax from remote sellers. Among states that have sales tax — as well as the District of Columbia — Missouri was the last to take some type of action to enforce the collection of sales taxes on purchases from remote sellers.

Some history: In June 2018, the U.S. Supreme Court handed a major victory to the retail real estate industry and state and local governments when it ruled on South Dakota v. Wayfair, Inc. The 5-4 decision overturned a 1992 Supreme Court ruling, Quill Corporation v. North Dakota. That 2018 decision effectively allows states to require retailers with no physical presence in a given state to collect and remit sales taxes on purchases made over the internet or via mail order. In May of this year, Missouri lawmakers voted to send an online sales tax bill to Parson, and he signed it today.

According to the nonprofit Tax Foundation, only five states — Alaska, Delaware, Montana, New Hampshire and Oregon — have no statewide sales tax. Alaska, however, allows cities and towns to levy local sales taxes.

The Wayfair ruling marked the end of a years-long effort by ICSC and its allies in the fight for “sales tax fairness” to level the playing field between brick-and-mortar retailers and e-commerce players. In the years leading up to the ruling, ICSC and others had argued that what amounted to an unfair tax loophole not only put brick-and-mortar retailers at a disadvantage but also did not reflect the current marketplace and was costing state and local governments billions in lost revenues each year.

ICSC vice president of federal operations Jennifer Platt says the actions taken by states in the wake of the Wayfair ruling didn’t impose new taxes on consumers. They’ve simply required remote sellers to do the same thing that brick-and-mortar retailers long have been required to do: Collect and remit sales taxes. Before the mandates, consumers were supposed to pay “use” taxes on purchases made from remote sellers — at a rate equivalent to their respective in-state sales tax — but very few did. Many shoppers mistakenly thought such purchases were tax free. “This is about fairness — in other words, making sure that everybody competes on a level playing field and that tax policy reflects the realities of the marketplace,” said Platt, noting that the Wayfair ruling is a victory not only for the shopping center industry but also for states, counties and cities.

And it couldn’t have come at a better time. During the pandemic, brick-and-mortar retail sales have been constrained in some places while online sales have accelerated, which has bolstered sales and use tax collections for many states and cities. The growth in revenue has helped some avoid painful cuts to critical services and/or property tax increases at a difficult time for many of their residents. “For years, we had research data showing that there were billions of dollars in uncollected sales tax revenue,” said Platt. “Many questioned the validity of that data, but what we’re seeing now absolutely proves we were right.”

In Jackson County, Tennessee, rising sales tax revenue has helped offset a recent decline in jail-related revenue, which typically accounts for about 8 percent of the county’s budget. As a result, the county hasn’t had to consider raising property taxes to make up for a budget shortfall, according to Mayor Randy Heady. Heady says the county’s sales tax revenue has climbed steadily since late last year, when Tennessee implemented legislation requiring retailers with no physical presence in the state to collect and remit sales tax if their annual sales there exceed $500,000. According to Heady, Jackson County’s sales tax revenue is expected to rise to nearly $500,000 during its 2020-21 fiscal year, which ends in June. That’s about $100,000 more than the county forecasted and about twice what it collected during its prior fiscal year.

Higher property taxes, says Heady, would have put a big burden on residents in a rural community where the median household income is only about $35,200, according to 2019 Census figures. Not long ago, the county, about 85 miles east of Nashville, was considered economically depressed under the Appalachian Regional Commission’s economic-status classification system. Today, the agency considers it at risk of becoming economically distressed. “Internet sales tax has saved my community in that I don’t foresee a property tax increase,” said Heady, adding that many residents are “already hurting” economically. “With the shortfall in major revenues that I have, I’m making up almost half of that in internet sales tax.”

Taxes from online sales activity also have helped stabilize some state budgets during COVID-19. Consider Arkansas, which in 2019 began requiring marketplace facilitators and retailers with no physical presence in the state to collect and remit its sales tax. The rule applies to out-of-state, remote sellers with yearly revenues in Arkansas exceeding $100,000 or at least 200 separate sales transactions per year in the state.

Since July 2019, the state’s sales tax collections have remained strong and regularly exceeded expectations, according to its Department of Finance and Administration. As of April 2021, sales and use tax revenue for the state’s fiscal year 2021, which ends in June, already had risen by more than 11 percent over the previous fiscal year, to $2.3 million. Retail sales taxes account for the bulk of sales and use taxes. John Shelnutt, the state’s director of economic analysis and tax research, attributes the recent growth in sales and use tax collections to federal stimulus’ effects on retail sales, the collection of sales tax from online purchases and higher levels of local spending by Arkansans who’ve been reluctant to travel out of state.

Even though Arkansas cut income taxes during the pandemic, as it did during the financial crisis of 2008, robust sales and use tax collections have contributed to what’s expected to be the largest surplus in state history in fiscal 2021. The state expects to use its anticipated surplus to bolster its long-term reserve and fund highway needs. The additional funding also may pave the way for further income tax relief. “The state’s record revenue collection places us in a position to consider an additional income tax cut,” said Gov. Asa Hutchinson.

“Overall, retail sales tax collection was a stabilizing force in Arkansas throughout 2020 and 2021,” Hutchison said. “This provided confidence for the future, knowing that critical state services were safe.”

By Anna Robaton

Contributor, Commerce + Communities Today

Small Business Center

ICSC champions small and emerging businesses in getting from business plan to brick-and-mortar.

Learn more