Outlook for Retail Real Estate: Are High Street Retail and Malls Poised for a Rebound Following Recent U.S. Supreme Court Ruling on Internet Retailers’ Requirement to Collect Sales Taxes?

It is no secret that high street retail districts, along with mid-level retailers and malls, have had a tough run due to the rise in e-commerce. However, with the recent U.S. Supreme Court ruling widening online retailers’ tax obligations, many retailers whose main source of business is their physical presence might be poised for a rebound.

On June 21, 2018, the U.S. Supreme Court in the case South Dakota v. Wayfair, ruled that internet retailers can be required to collect and remit sales taxes even in states where they have no physical presence.

Ken Weissenberg, EisnerAmper Tax Partner and Partner-in-Charge of the firm’s Real Estate Services Group, said this monumental U.S. Supreme Court decision might foster a more level playing field between brick-and-mortar businesses and online retailers, possibly giving stores an advantage over e-commerce.

“For a long time, brick-and-mortar businesses complained that they had to charge sales taxes on goods while online retailers have not,” he said. “Now, with the new ruling, not only will state and local governments earn upwards of possibly tens of billions in annual revenue through taxes required by e-commerce, but in addition, this might give local businesses a competitive advantage with the benefit they have always had over online retailers -- people trying out the products in the stores before purchasing them.”

Garrick Brown, Vice President, Retail Intelligence for the Americas at Cushman Wakefield, told EisnerAmper a few reasons why physical retailers have struggled:

• High street retail districts, such as Upper Fifth Avenue, have been getting hammered because some of the luxury brands with storefronts are contracting. 
• The retailers in the middle, such as JCPenney and Macy’s, have been hit hard because they have been encroached upon by both online retail and off-price apparel brands such as Ross Stores, TJ Maxx, Burlington Coat Factory, and more.
• Many bankruptcies in the retail space such as Toys “R” Us and Claire’s have forced malls and strip malls to convert the spaces into mixed-use projects with offices, hotels, apartments and scaled-back retail offerings that focus on food, beverage and entertainment.
• Millennials’ spending patterns, with a preference toward spending on entertainment over apparel, have also been a contributing factor in brick-and-mortar businesses struggling.

Once the e-commerce sites start collecting and remitting sales taxes, it will be interesting to see if high street retail, mid-level retailers and malls will rebound in sales.