I understand both the States’ and the brick-and-mortar merchants’ dilemma. When the Commerce Clause was conceived, the idea behind prohibiting taxes and duties on interstate trade was to prevent States from being protectionist by discriminating against out-of-state merchants in favor of in-state merchants. The founders believed this would stifle economic growth and competition.
The e-commerce marketplace has turned that original rationale on its head, where online interstate commerce is now so easy and common it is the in-State merchants that have a competitive disadvantage - specifically because they have to collect sales taxes on their transactions.
While this article is better than most in sizing up the situation, it still lacks several key points.
First, although Quill did prevail in the US Supreme Court, the Court did find that Quill had a sufficient nexus under the Due Process clause. The decision in Quill’s favor ultimately hinged on the burden placed on out-of-State merchants, and that burden being substantial enough as to violate of the Commerce Clause. I’m not persuaded at all that the burden is any less today. By some estimates there are more than 6,000 taxing jurisdictions in the USA. Expecting on-line merchants to register with each, collect properly for each, and to report and remit for each is a monumental task. It also opens up questions of whether the merchants would then also owe other taxes to the various States, such as gross-receipts, personal-property taxes, income taxes, etc.
Another issue barely even acknowledged is that there already is a requirement for each States’ residents to pay a “use” tax on items acquired out-of-State, and where sales tax wasn’t already collected. The States will have to prove to the Court’s satisfaction that all of these on-line merchants should and can do what the States themselves are unable or unwilling to do on their own. More succinctly, why is it the responsibility of out-of-State merchants to collect taxes that the States won’t collect directly?
Third, if they were to accept the “Economic Nexus” theory, having the out-of-State merchant be responsible only when revenue or transaction counts exceed certain thresholds, might that violate the Constitution’s Due Process Clause and/or Equal Protection? Why would Wayfair have to register, calculate, collect and remit, while Joe’s Bait-Shop doesn’t?
Every “solution” introduces new problems, so really aren’t solutions at all. Congress hasn’t acted because they can’t agree themselves which of the many possible “remedies” is better than the status quo.
“The States will have to prove to the Court’s satisfaction that all of these on-line merchants should and can do what the States themselves are unable or unwilling to do on their own. More succinctly, why is it the responsibility of out-of-State merchants to collect taxes that the States won’t collect directly?”
A well-put question. The stages trying to put the burden on individual businesses seems even more ridiculous the way you put it.
Harmless teddy bear brought up another hypocritical scenario. HTB Has a brick-and-mortar store that also sells online. They would have to treat online customers differently than their walk in customers. The walk-in customers would pay the tax rate at the location of the store, while the online customers pay the tax rate where they live.
I suppose this discrepancy is already set in place. But if the Supreme Court is attempting to level the playing field, there shouldn’t be two different tax rates depending on how you purchase the same merchandise from the same store.