While the policy making calendar typically slows down in the summer months, Congressional leaders on various committees continue to discuss a number of issues, which means NAR remains vigilant all year long, especially as we prepare for a busy Fall Session. Internet Sales Tax Fairness and Waters of the U.S. are two issues that had a great deal of activity so far this year, and will continue to be on our radar.
Internet Sales Tax Fairness
According to Bloomberg1, fall is a busy time for the economy—the retail sector in particular. Farmers start bringing in crops at the end of the summer and the nation’s ports are full of an extra $20 billion to $40 billion a month in merchandise (with implications for warehouses, transportation hubs and retail centers). By contrast, U.S. gross domestic product shrinks by about 3 percent every winter, when grocery shoppers and construction workers stay inside.
Internet Sales Tax Fairness is the term given to the position that states should be able to require online retailers to collect and remit sales tax on items purchased by their residents. Currently, states do not have this authority, and are thus losing out on owed tax revenue needed for infrastructure upkeep and reinvestment into communities. In addition, it creates a disparity between what e-commerce retailers and traditional brick-and-mortar stores charge for the same items, since the latter must include sales tax, creating an uneven playing field for the two businesses. Real estate professionals working in the commercial real estate industry serve the business needs of these brick-and-mortar retailers, by helping them buy and sell property for storefronts or aiding in the development of larger shopping centers where they lease space. If these retailers struggle to stay open, the impact will be felt throughout the commercial real estate industry as vacancy rates rise and fewer property transactions are completed.
While legislation giving states this power has been introduced in the past, it has never been approved by both chambers of Congress. Currently there are two bills – S. 698, the Marketplace Fairness Act of 2015 in the Senate, sponsored by Senators Enzi (R-WY) and Durbin (D-IL) and H.R. 2775, the Remote Transactions Parity Act of 2015, sponsored by Representatives Chaffetz (R-UT) and Womack (R-AR), which would give states the authority to require this uncollected but owed tax be remitted to them by online retailers. NAR supports this legislation, and will continue to advocate for its passage.
In the absence of federal law regulating state sales tax for out-of-state online purchases, many states have enacted their own laws addressing the issue. The Supreme Court ruled that states may only force a retailer to collect sales tax if they have a physical presence in that state, and that Congress is the proper body to ultimately resolve the issue. Some states though, in need of the sales tax revenue have taken a broad interpretation of the term “presence” or “nexus.” This means that retailers may be required to collect sales tax for purchases sent to one state but not another, even though their “presence” in each state is essentially the same. If you are working with clients who want to know the online sales tax laws of the states they are considering purchasing or leasing property, it’s best to advise clients to consult with an attorney as to the current status of the states’ laws.
Waters of the United States
The Environmental Protection Agency (EPA), along with the U.S. Army Corps of Engineers (Corps), went through a years-long process to rewrite the rules within the Clean Water Act that govern the definition of ‘Waters of the United States’ (WOTUS), ultimately governing the EPA’s and the Corps’ jurisdiction over bodies of water within the U.S. The revised rule would have greatly expanded the two agencies scope.
NAR opposed the proposal from the beginning, filing several comment letters on its own and with industry partners to highlight the challenges presented in the proposed rule. The rule included provisions that would have required expensive, time-consuming federal permits to develop private property near most bodies of water, regardless of the navigability of the water. The concern is that property owners could find themselves under the regulation without adequate compensation, as prescribed under the 5th Amendment of the Constitution.
Despite criticism from many industries, including NAR and other real estate partners, the EPA rulemaking was finalized in May 2015, with the expanded definition. Almost immediately, Congress responded with a proposal in each the House and Senate blocking the rule from being enacted.
A companion bill in the Senate, the Federal Water Quality Protection Act, sponsored by Sen. Barrasso (R-WY), S. 1140, would also require the EPA to conduct and adhere to the appropriate regulatory process and includes definitions of the kinds of waters that should be excluded from the rule.
In addition to those bills, a provision in the FY 2016 Appropriations Bill would prohibit the EPA from expending any funds to implement the WOTUS rule. This bill also passed the House and is awaiting action in the Senate. The House of Representatives passed legislation, H.R 1732, in May requiring the EPA to scrap the rule and start again. The bill is now in the hands of the Senate, and NAR is urging them to vote on this important legislation. The EPA recently finalized regulations placing more bodies of water under federal jurisdiction, including small streams and isolated wetlands. These regulations have the potential to adversely impact real estate development and property rights, requiring the vigilance of NAR to watch for changes in the regulatory landscape.