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June 29, 2018

The highest court in the U.S. has leveled the playing field for e-commerce companies and retail landlords snared in a tug-of-war for consumers.

The Supreme Court ruled last week that state governments have the authority to collect billions of dollars in new sales tax from online retailers – even when the retailer has no physical presence in the region.

The ruling overturns a 1992 decision that allowed many e-commerce retailers to avoid charging customers sales tax, giving them a competitive edge over physical stores.

“I believe that the playing field has finally been leveled,” says Greg Maloney, CEO of retail at JLL, Americas. The new balance, over time, “should be a substantial boost to investment into physical retail.”

While the ruling is unlikely to spark an immediate shopping center investment spree, it will have the short-term impact of making “physical properties more attractive to cautious investors,” Maloney says.

“This decision was about fairness,” he explained. “Today’s retail landscape is multifaceted, with selling happening across different channels. Frankly, we were long overdue legislation that supports that landscape.”

The ruling puts the ball in the court of the country’s individual states, allowing governments to pass their own legislation requiring all retailers, physical and otherwise, to collect and remit sales taxes.

While this is a “great first step,” Maloney says, the “patch-work quilt of state laws could serve to be confusing.”

“Ultimately, a federal solution is the most desirable outcome for all,” he says.

Investment into retail properties slowed during the first five months of 2018. During this time, the gap between sales and asking prices was high, putting buyers and sellers at an impasse. That’s likely to change, however, at the tail end of the year.

“We believe that ‘the faucet’ will come back on in the back half of the year as fundamentals across the board remain steady,” Maloney says. “Once a solid price is set, it should lead to a significant increase in activity.”

Click to read about whether eased terms on CRE loans will cause a refi spike.

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Greg Maloney

CEO of retail at JLL, Americas

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