There are few more famous economists on the right than Arthur Laffer, the father of supply-side economics, keymember of Ronald Reagan's Economic Policy Advisory Board and creator of the Laffer Curve, which every undergrad remembers from their Intro to Econ class (the curve shows the relationship between tax rates and tax revenues collected by governments as a way of finding the sweet spot where the rate spurs people to work hardest generating the most for IRS coffers). Well, now Laffer has placed one controversial source of tax revenue on the grid. In a new study about taxing online retailers, he estimates that states will lose out on annual revenues of between $27 billion and $33 billion by 2022 if they don’t tax Internet sales.
He estimates that by 2022 taxing online sales would add $342.9 billion to the country's gross domestic product and 916,627 jobs to its workforce. A bill to tax e-tailers, known as the "Marketplace Fairness Act", passed the Senate by 69-to-27 this spring and is now in the House of Representatives, where it already has 65 co-sponsors, almost half of them Republican. The legislation would allow states to force online retailers with more than $1 million in annual out-of-state sales to collect sales taxes from all customers and remit those taxes back to state and local governments. The bill’s most vigorous proponents are, not surprisingly, small businesses and bricks-and-mortar retailers who say online stores have an unfair advantage. When considering the full legislation, which would also apply to catalog and other remote sales, Laffer thinks it will raise U.S. GDP by $563.2 billion dollars and add 1.51 million jobs.
The real estate industry sees this as a complex issue: on the one hand, leveling the playing field would drive demand from traditional retailers who’ve felt the pinch from the migration of shopping to the internet and away from physical stores. CRE industry groups, especially the International Council of Shopping Centers (ICSC), actually helped create the Marketplace Fairness Coalition lobbying organization. In February, the nation's largest online seller, Amazon, even came out in support of the act. The Internet giant has already inked agreements to collect sales taxes in numerous states where it's building distribution and fulfillment centers - and many analysts believe, creating a capability for next-day or even same-day product delivery.
On the other hand, online retailers have fueled the boom in warehouse/distribution and data centers nationwide and the new tax could slow that growth. Amazon is actually bigger than Wal-Mart if you factor in 3rd party sales and shows the increasing sophistication of e-tailers as they move from the old model of single or multiple regional fulfillment centers to mult-channel/blended fulfillment strategy which make things like same-day delivery possible. We now live in the world of m-commerce (that’s buying with smart phone) and s-commerce (buying via social media) so there’s no doubt that e-commerce will need increasingly more complex buildings to support their strategy.
We also shouldn’t forget that most of the major traditional retailers draw a great deal of their revenue from online transactions. Nordstrom is set to invest nearly $1 billion over the next five years on its e-commerce capacity. Macy's Inc's online sales climbed 41 percent last year, helped in part by its use of nearly 300 stores to help fill orders online during the holiday season. The process required an expensive integration of Macy's inventory systems.
Ultimately, the concern is that the tax could temper the buoyant state of e-commerce which is predicted to grow 10% every year until at least 2017. By then, U.S. online retail sales should reach $370 billion, compared with $262 billion this year, according to Forrester Research.
As Real Estate Analyst, Scott Latter focuses on the disposition, acquisition and recapitalization of office, industrial and healthcare assets on behalf of private investors, investment funds, institutional investors and REITs. An affiliate of The Alter Group, EnTrust Realty Advisors, LLC, specializes in the disposition and recapitalization of investment real estate through direct sales, joint ventures and structured financing. It distinguishes itself by dedicating personal care to providing fiduciary quality commercial real estate investment services from the simplest to the most complex transaction.