JLL paper examines impact of Supreme Court internet sales tax ruling on logistics site selection

Earlier this year, the Supreme Court decision for South Dakota vs. Wayfair paved the way, or at least began laying down the groundwork for states to collect sales on online purchases, whether or not a retailer has an actual physical presence in the state.

Initially, from a logistics perspective, it may seem like there is not a ton to glean from this, but a new industrial impact paper from Chicago-based commercial real estate firm JLL indicates that is not the case, especially for smaller retailers.

The JLL paper, entitled “Supreme Court ruling on internet sales tax clears the air,” examines the implications of the Supreme Court’s decision for retailers, in terms of how this ruling may affect logistics space needs for small online retailers.

How that plays out exactly at this point is somewhat undefined, with JLL explaining that the next steps will take time to materialize “as either state or national legislation must be enacted, or other lower court rulings on sales tax collection will need to firm up requirements on business.”

But there could be more of what JLL called an immediate effect on logistics site selection for both omnichannel and pure play e-retailers.

“Bigger retailers will find themselves unimpeded by sales tax when planning logistical expansions, while smaller players may be forced with the decision to invest in tax-compliance infrastructure at the cost of profit margins,” JLL said. 

JLL Industrial Research Director Aaron Ahlburn said in an interview that while the next step here is legislation to help codify what the Supreme Court has ruled upon.

“There is a lot more of this story that needs to be told and will be told,” he said. “From our perspective, it does create a little bit more clarity around the collecting of sales tax across jurisdictions for the states to collect. If anything, it helps to level the playing field. But for some of the smaller e-commerce retailers that are more pure play it means they will have to enact changes in how they are processing sales. As we understand it, there are a number of software providers that are out there that can help make that process a little bit more efficient for them.”

In terms of the impact on logistics site selection processes for smaller retailers, Ahlburn said that the working hypothesis is that over the short term it puts the pressure on some of the smaller players’ margins. But he noted that if they can find solutions that can help them collect sales taxes on an efficient basis then the immediate impact is not as dire.

“In the end, it opens them up to not necessarily being pressured to have a location in any one state anymore,” he said. “If you are a small player or an emerging e-commerce company and there were any hindrances that you might have faced if a distribution center or a small facility was placed somewhere in these states, then I will have to make sure I am processing sales taxes in those states as well. Now there is that clarity that is rather unimpeded in making a site selection decision.” 

What’s more, in an environment where there are increasing sales in more sectors translate into more online sales activity, he said it can definitely be beneficial for companies, even if there are more short-term steps to go through.

“If there is a little more freedom in terms of site selection, then [retailers] have the opportunity to be more sophisticated in where they tend to move their supply chain distribution real estate,” said Ahlburn. “That makes it a prime opportunity for growing and emerging companies in that now there is a little more clarity and a little bit more ability to choose where the next node is in their logistics network.”