States ready for Supreme Court ruling on online sales tax
With the U.S. Supreme Court weeks away from hearing arguments in a landmark case on online sales taxes, several states are readying laws that would allow them to begin collecting millions of dollars almost immediately if the court rules in their favor.
States across the country are salivating at a potential windfall in sales taxes — but they’ll only get it if they have a law on the books that allows them to collect taxes from online sellers. For states without an income or corporate tax, the sales tax collections are even more important.
Currently, taxes are not collected on billions in remote sales, though Amazon, the biggest online seller, has agreed to do so in many states. The potential is huge: E-commerce sales made up 9 percent of all retail sales in the United States last quarter, topping $119 billion, adjusting for seasonal variation, according to the Census Bureau.
“It’s about the money,” said Max Behlke, who handles budget and tax issues for the National Conference of State Legislatures, which supports allowing states to collect the taxes. Behlke pointed out that in most states, sales tax revenue never rebounded after the Great Recession, despite the fact that Americans are buying more.
In part, that’s because they are buying online. “When Americans are buying more but the tax revenue is not rebounding, that’s just a measure of where young people are shopping,” he said. “Revenue begets action.”
Putting a law on the books now will likely shorten the time frame for collecting the revenue, he said.
The 45 states that have sales taxes maintain that altogether they could collect an estimated $26 billion annually in sales taxes on products sold remotely — online and via mail order — according to the National Governors Association.
A November 2017 estimate from the Government Accountability Office is lower, but pegs the potential revenue for state and local governments at $8 billion to $13 billion a year — though the analysis warns that businesses will face compliance costs.
Arguments are scheduled for April 17 in the case of South Dakota v. Wayfair Inc., in which the state contends that a 1992 high court ruling prohibiting collection of sales taxes from any seller that does not have a physical location in the state is outdated. South Dakota notes that the underlying case, Quill Corp. v. North Dakota, involved sales of floppy disks, symbolizing how outdated the case really is.
Defendants, which include online retailers, argue that the remote tax collection violates the commerce clause of the Constitution, which gives the federal government the power to regulate commerce among the states. A ruling is expected by summer.
At least nine states have bills in their legislatures this year that would facilitate the collection of sales taxes on remote purchases according to NCSL, which keeps track of such legislation. They include Georgia, Hawaii, Idaho, Iowa, Kansas, Nebraska, New Mexico, New York and Oklahoma.
This year’s legislative push follows action in about a dozen states last year, where officials enacted laws or wrote administrative rules that would allow online sellers to collect remote sales taxes and then remit the funds to state coffers.
In general, lawmakers argue that extending sales taxes to the internet is not a new tax, but rather the enforcement of an existing levy. Technically, buyers already are required to remit state taxes on things they buy on the internet, but in practice, few, if any, do so.
Oklahoma Sen. Tom Dugger, a Republican who identifies himself as the only certified public accountant in the state’s Legislature, is sponsoring legislation to make sure his state is ready. “This just makes sure we get in now because we don’t know when the federal government will make it active.”
Dugger’s bill would require internet sellers, if they do not collect and remit state sales taxes themselves, to report the number and amount of sales of products in Oklahoma and list the names of those who bought items. Presumably, that would allow the state to go after the buyers to send in their sales tax.