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Post-Wayfair, Locals Still Lose Main Street Property Tax to Online Vendor Competition

The online sales tax South Dakota can collect now from Amazon and other remote online vendors is already boosting local revenue projections. But don’t think that we’ve totally zeroed out the local tax revenue disadvantage that accrues from online businesses competing with local businesses. Those big out-of-state vendors still won’t be adding to our property tax rolls:

The story is similar when it comes to property taxes, which are the leading source of revenue for state and local governments.[33] Amazon, however, doesn’t have a physical presence in most of the places where it does business, and as it grows, it’s displacing sales at brick-and-mortar stores and contributing to growing retail vacancy.[34] A report from the firm Civic Economics, for instance, estimates that land use changes triggered by Amazon resulted in a drop of $528 million in property tax revenue in 2015 [35] [Stacy Mitchell and Olivia Lavecchia, “Amazon’s Next Frontier: Your City’s Purchasing,” Institute for Local Self-Reliance, 2018.07.10].

As online shopping grows and picks off more local brick-and-mortar vendors, how will South Dakota towns, counties, and school district replace those decreased property tax revenues? Will we follow the logic of the Wayfair ruling to the crazy conclusion that the new electronic “nexus” that justifies collecting sales tax from other states also justifies collecting property tax on warehouses and offices in other states?

Oh well—maybe local governments can just save money by following their taxpayers in buying their supplies through Amazon… or maybe not:

Early last year, Amazon contracted with the Prince William County School District in Virginia and by extension earned a contract with U.S. Communities, a purchasing group with public-sector members in all 50 states. More than 1,500 public agencies have since signed on to buy products through Amazon Business, the B2B counterpart to the company’s popular Prime service.

While Amazon and U.S. Communities have touted their partnership as a cost-saver for public agencies and a boon for suppliers, a new report finds that Amazon Business does not always deliver the savings it promises. The report by the Institute for Local Self-Reliance, a frequent critic of Amazon, also argues that Amazon is increasingly cornering the supply market by forcing vendors to sell their products through Amazon.

Critics say the contract between U.S. Communities and Amazon is written in a way to favor the company and makes it next to impossible for vendors not on Amazon to compete for the job [J. Brian Charles, “As Amazon Enters Government Purchasing Market, Signs of a Bad Deal Emerge,” Governing, 2018.08.02].

With sales tax now equalized for remote and Main Street vendors, local businesses can still make the argument that shopping with them supports the local tax base more than shopping with a remote seller who pays no property tax in our communities. But if local shops can’t compete on price and selection, Amazon and other giant onliners will continue to press those local sources of jobs and property tax revenue out of business.

I wonder: how sustainable would it if the Internet made Aberdeen a bedroom community, with people maybe stepping out to work in factories and restaurants but mostly holing up at home and doing all of their shopping online and receiving their goods by self-driving trucks and drone whirly-birds?

8 Comments

  1. Roger Elgersma 2018-08-03 11:07

    South Dakota businesses sell on line as well. So that balances out if our people are as ambitious as other states.

  2. Susan England 2018-08-03 12:54

    My question has always been now that online retailers have to collect sales tax for SD, don’t SD retailers have to collect sales tax for other states? What kind of burden does this add to our retailers in SD?

  3. Cory Allen Heidelberger Post author | 2018-08-04 09:01

    Roger, do we have as much to sell online as other states do? Can we take up a proportionate share of online commerce with locally grown and manufactured goods and services?

    Susan, yes, under Wayfair’s reasoning, other states can enact reciprocal legislation and require SD retailers to collect and remit out-of-state sales tax. Local online sellers have expressed their alarm.

  4. Porter Lansing 2018-08-04 09:12

    What’s alarming about collecting and remitting out-of-state sales tax? You don’t even have to hire Bob Cratchett to do it. There’s free computer software that will do all the work necessary in a hundredth the time it takes to make a sale to an out-of-state customer. Sales, sales and more sales. Focus on the customer’s needs and the sales and forget the “Dakota Contrary”.

  5. Cory Allen Heidelberger Post author | 2018-08-05 14:14

    Porter, I’m inclined to believe the alarm expressed by locals is misplaced. I’m less alarmed by the technical difficulties (spreadsheet, VLOOKUP by ZIP code) and more by the idea that a state government can impose a legal duty on an entity not located within that state’s physical jurisdiction.

  6. Porter Lansing 2018-08-05 14:22

    If an Aberdeen company sells a pound of bison jerkey to a customer in Florida, the sale takes place in Florida. Florida is where the money changes from the customer to the Aberdeen business and Florida is where the tax is owed to the state. That the money is transferred to Aberdeen has no bearing on where the sale took place.

  7. Cory Allen Heidelberger Post author | 2018-08-06 21:03

    Porter, I’m still willing to allow my local jerky vendor to declare the sale takes place here in South Dakota, when the jerky leaves his hands for the UPS truck, and the customer pays South Dakota sales tax. Other states should get wise and go for that, since I’ll bet they’ll make more money off their vendors’ sales than South Dakota will off its buyers’ purchases.

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