Supreme Court Decision Spurs Calls for Sales Tax Fairness

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In the wake of the United States Supreme Court’s decision earlier this month to not hear a legal challenge brought by and regarding New York State’s affiliate nexus law, editorials in newspapers across the country have urged states and/or the U.S. Congress to turn sales tax fairness from an idea into a reality.

In a December 9 editorial, the New York Times noted that the “Supreme Court quietly cleared the way for states to begin collecting some $13 billion in sales taxes that go uncollected” on remote, online purchases. The editorial argued that the “development creates an important opening for hard-pressed states to update their sales-tax codes broadly.”

The Times said that states without affiliate nexus laws “would be wise to follow New York’s model” as “state tax revenues have only barely returned to pre-recession levels, which is not nearly enough to meet today’s needs.”

In states that have passed affiliate nexus sales tax fairness legislation, a remote seller is considered to have a physical presence in the state if it employs a broad online affiliate network doing at least $10,000 per year in sales. The New York Times editorial also points out that, while sales taxes are “generally regressive, sales taxes on Internet purchases tend to spare low-income consumers somewhat because they shop less online than those with higher incomes.”

However, the editorial concluded that until Congress finally passes a law implementing sales tax fairness, “states will have to act on their own.”

The Milwaukee-Wisconsin Journal Sentinel said that the Supreme Court’s decision “emphasizes the need for Congress to pass the Marketplace Fairness Act,” a bill that would give states the right to require remote retailers to collect and remit sales tax to the state. “Lacking consistency from the feds, states are now left to their own devices, meaning that buyers may or may not pay sales taxes when buying, say, an iPad, simply depending on where they live.”

The Sentinel continued, “The bill is now in the [U.S.] House [of Representatives], where there is no guarantee it will make it to a vote. That’s too bad. This is not a new tax; it’s simply making sure that all sellers have the same obligation whether they sell their goods in a store or online. The court’s refusal to get involved sends a strong signal that the House needs to recognize that fact.”

An editorial in Kentucky’s Message-Inquirer pointed out that online sales for this year’s Black Friday were $1.2 billion and “as online shoppers flock to the Internet in record numbers … states … are losing millions of dollars in sales tax revenue.”

The editorial noted that Kentucky state Rep. Tommy Thompson (D-Philpot) and state Sen. Joe Bowen (R-Owensboro) both support the Marketplace Fairness Act. Both lawmakers told Message-Inquirer that Kentucky’s “annual share of the online pie could be between $150 and $250 million — money that could help fund education, the pension shortfall, and numerous other state programs that have suffered major cuts in recent years.”

Similarly, Florida’s Ledger noted that the Supreme Court decision “could provide momentum” for an affiliate nexus law in the state. While an affiliate nexus bill (SB 316) introduced by state Sen. Nancy Detert (R-Venice) failed in the 2013 legislative session, the Ledger reported that state Sen. Gwen Margolis (D-Coconut Grove) has filed a similar bill for the 2014 session.

“Although state revenue continues to grow with an improving economy,” the article noted, “legislative leaders have warned that money will still be tight as lawmakers try to cut taxes while funding other state needs such as education and the Medicaid health care program.”

Andrew Wesemann, an Institute of Public Policy doctoral student at the University of Missouri’s Truman School of Public Affairs, told the Kansas City Business Journal that by refusing to hear the Amazon and Overstock challenge the Supreme Court “essentially has opened the door for states like Missouri to pass similar laws that not only would generate millions in additional annual revenue for the state, but give consumers an incentive to shop local.”

Missouri loses an estimated $259 million in annual sales tax every year, the Business Journal reported, and “with Cyber Monday sales growing by 17 to 19 percent of total Internet retail sales compared with last year’s figures, that forgone amount is expected to steepen.”

A December 7 New Jersey Star-Ledger editorial stated flatly: “It’s time to end e-commerce’s free ride.”

The paper’s editors said, “It’s easy to see why brick-and-mortar retailers … are eager to level the sales tax field. Think about it: Your downtown gift shop is required by law to collect sales tax from its customers. A shopper comes in, browses the shelves but leaves empty-handed — only to buy the product online. The online seller collects no sales tax, so the purchase feels like a discount. The customer is supposed to pay the sales tax himself, on the honor system (wink, wink).”

The Star-Ledger reported that New Jersey is losing about $200 million a year, though the deal it struck with Amazon that will have the online giant collect and remit sales tax will bring in about $30 to $40 million. “A federal law would force sales tax collections on all e-buys…. Complicated, yes, but also solvable.”

“Let States Tax Internet Sales,” declared a December 7 Post and Courier (Charleston, South Carolina) editorial, which urged the U.S. House of Representatives to take up the issue. “The … Marketplace Fairness Act would set uniform standards for out-of-state retailers to collect the revenant sales taxes. It’s an equitable solution that needs to be broadly applied.”

Other recent editorials and opinion columns advocating for sales tax fairness include: