Posted on 03/06/2018 2:50:44 PM PST by Kaslin
In fairly short order, the Supreme Court is going to begin hearing arguments in the case of South Dakota v. Wayfair Inc. This case is being closely watched around the country because of the potential impact it will have on consumers as well as retailers, both traditional and online. The state of South Dakota is asking the Supremes to overrule their 1992 decision in Quill Corp. v. North Dakota, which held that states could not force online retailers to collect sales tax in other states where the company didn’t have a physical presence.
Now the White House has weighed in on the side of the states. The administration filed a friend of the court brief urging the justices to take a fresh look, placing the current sales situation in context while considering all the changes which have taken place in the retail space over the past 26 years. (Wall Street Journal, subscription required)
The Trump administration on Monday urged the Supreme Court to expand states’ authority to collect sales tax on internet transactions, joining a chorus of state officials seeking to overrule a 1992 precedent exempting many online retailers from having to add taxes to a consumer’s final price.
In 1992, the justices “did not and could not anticipate the development of modern e-commerce,” Solicitor General Noel Francisco wrote in a friend-of the-court brief. “In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible, the states have ample authority to require those retailers to collect state sales taxes owed by their customers.”
South Dakota is leading a charge to overrule 1992 case, Quill Corp. v. North Dakota, with arguments scheduled next month. Some 35 states and the District of Columbia, as well as organizations representing retailers from booksellers to shopping malls, have filed briefs supporting South Dakota’s position. Catalog mailers and online retailers have opposed the state, arguing that it is too burdensome for many businesses to comply with 50 or more separate state taxing regimes.
The 1992 case held that constitutional provisions assigning Congress authority over interstate commerce prohibited states from requiring out-of-state retailers to collect sales taxes without congressional assent. While consumers remain obligated to pay sales tax, few know of this duty and fewer still voluntarily comply, robbing state treasuries of billions of dollars, officials say.
This drags us back into a long-running discussion we’ve had about the Marketplace Fairness Act and whether or not Congress should act on this subject before the courts can get around to it. There are two ways to view this which have always left me a bit conflicted, but it’s not hard to see the merit in each side.
Arguing against any sort of change from the status quo is quick and easy. First of all, most people don’t want to pay even more taxes or to have the cost of all of their online purchases go up. But even more than that, when the courts originally ruled in Quill it was pointed out that the Constitution vests in Congress the power to regulate interstate commerce. As you should know by now, the interstate commerce clause is probably the most badly abused, archaic clause in our founding documents. It’s the cheap excuse that Congress uses to pass all manner of federal laws, doing verbal backflips to dream up ways to portray any given scenario as having an impact on commerce between the states.
And considering how the Founders actually pictured the country operating (with the various states being highly independent to the point of possibly conducting trade wars against one another), the clause became obsolete almost immediately. But in the era of online sales, this may be that rare unicorn of a case where the interstate commerce clause actually applies.
But we can have some sympathy for the other side of the argument as well. Brick and mortar retailers have a legitimate gripe in saying that their competitors are able to sell cheaper by virtue of being given a free pass in states where a sales tax is charged while they have to impose the tax. It’s also true that consumers are supposed to be paying the tax on such transactions, but basically, nobody does.
Will Trump’s friend of the court brief have any impact on the court’s decision? Color me skeptical. They get piles of those briefs fed to them in every case they hear and even if they bother reading them I highly doubt there’s any critical information within that they didn’t already know if they planned on taking it into account. But it also leaves room for Congress to reconsider the MFA. If Quill is overturned with no legislative action taken, every single retailer, including the smallest, could be hit with this requirement. Intervention by Congress could at least carve out some space for small businesses and start-ups. It’s something to consider anyway.
Or more? How about over a thousand.
If they do this I want every B&M store to have to check the id of all customers, collect and remit the appropriate sales tax to the tax areas where that person resides.
No more driving to another tax district avoid paying taxes on your pop.
You want this, you are going to get it, good and hard.
Excellent point!
IF this is all about creating a level playing field, brick and mortar stores need to abide by the same rules as these internet stores. Wow what a mess this would create.
Why have car dealerships been allowed/forced to charge tax based on the customer’s residence, I wonder?
“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Ronaldus Magnus The Great
We sell used and collectible so what we sell has had sales tax paid on it at least once but we have to collect and pay it again for all in-store purchases.
And now they want to do this to us?
My State government came after me for taxes on internet purchases. Of course, I was buying individual cartons of cigarettes, which probably put a target on my back. Stopped doing that because I didn't like being on the radar.
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.
I know, it’s crazy. And then they would be expecting you to treat your in-store purchases differently than online purchases. That’s hypocrisy.
I was going to start a small online business in Tennessee. But the regulations involved with selling food got the best of me and I decided it wasn’t worth my time and effort any longer. I wouldn’t be allowed to sell to the other states and the customer base in Tennessee would be too small to make it worth it.
Just dealing with Tennessee sales tax was going to be time-consuming, this would’ve been overwhelming.
I just got a bill from my state government wanting me to pay sales tax (estimated) for the two years after I had shut the business down.
They want sales tax on transactions that never happened.
Now I can deal with my state government but can you imagine getting that kind of bill from say, New York?
This is the kind of thing that will drive mom and pops out of business. We can not hope to comply. We can not afford to argue when they make a mistake. And the big boys will be laughing all the way to the bank.
“Now I can deal with my state government but can you imagine getting that kind of bill from say, New York?”
Oh, I can absolutely imagine it. I lived it. We shut down a business in Tulare county California. Then a few years later we moved to Tennessee. They hunted us down, insisting that we pay personal property taxes for those years the business was shut down on the business equipment that we no longer had.
Calling them was futile, since the idiot on the phone could barely speak English. Finally got a manager to call back and she said I needed to prove that the business was closed. Apparently their form that I sent them where I checked that the business was closed was not good enough.
They wanted federal tax returns for all the years that the business was closed. I contended that I would give them schedule A and schedule C but the rest of it was none of their business. At this point I was just being obnoxious because I couldn’t stand the Nazi tactics they were using. I thought about sending them complete tax returns, including all the H&R Block worksheets. It would’ve been thousands of pages :-) but about that time they relented that what I had sent them was good enough.
I’m so glad I left that commie state. But even leaving doesn’t stop them from trying to go after you. And liberals think we need more government!
“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.
I had to convince them four years ago that a debt write-off from a stolen identity was not taxable to me. Now if they ever find the thief they can tax her.
Then two years ago I had to show them that gross income was different then net income.
Now this.
The worse part of it is these people are paid by our taxes to harass us.
Yep - and if one buys a car in one State but doesn’t register it there, they end up paying the sales tax in the State they do register it in - one way or another, some State will receive the taxes.
Aren’t you the idiot that keeps calling me an anti-semite?
By the way, Cohn bailed, Mnuchin to soon follow.
Mission accomplished, they have transferred the tax liability to the middle class and called it a tax cut.
That expires for the middle class, but NOT for the corporations.
Pretty crafty, if you ask me.
I would never use them again..........
Teleflora.................
Correct. And township borders often straddle zip code boundaries. The retailer would need to have their sales system connect to a service bureau to figure out the sales tax associated with an address, and for a business doing small transactions it would not be worth the hassle.
No, I'm the non-idiot who calls them as I see them. And when your anti-semitic posts get deleted, you can blame someone else.
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