Ques­tion of sales tax on on­line pur­chases goes to high court

The Sentinel-Record - - VIEWPOINTS - JES­SICA GRESKO

WASH­ING­TON — Sales Tax: $0.

On­line shop­pers have got­ten used to see­ing that line on check­out screens be­fore they click “pur­chase.” But a case be­fore the Supreme Court could change that.

At is­sue is a rule stem­ming from two, decades-old Supreme Court cases: If a busi­ness is ship­ping to a state where it doesn’t have an of­fice, ware­house or other phys­i­cal pres­ence, it doesn’t have to col­lect the state’s sales tax.

That means large re­tail­ers such as Ap­ple, Macy’s, Tar­get and Wal­mart, which have brick-and­mor­tar stores na­tion­wide, gen­er­ally col­lect sales tax from cus­tomers who buy from them on­line. But other on­line sell­ers, from 1-800 Con­tacts to home goods site Way­fair, can of­ten side­step charg­ing the tax.

More than 40 states are ask­ing the Supreme Court to re­con­sider that rule in a case be­ing ar­gued Tues­day. They say they’re los­ing out on “bil­lions of dol­lars in tax rev­enue each year, re­quir­ing cuts to crit­i­cal gov­ern­ment pro­grams” and that their losses com­pound as on­line shop­ping grows. But small busi­nesses that sell on­line say the com­plex­ity and ex­pense of col­lect­ing taxes na­tion­wide could drive them out of busi­ness.

Large re­tail­ers want all busi­nesses to “be play­ing by the same set of rules,” said Deb­o­rah White, the pres­i­dent of the lit­i­ga­tion arm of the Re­tail In­dus­try Lead­ers As­so­ci­a­tion, which rep­re­sents more than 70 of Amer­ica’s largest re­tail­ers.

For years, the is­sue of whether out-of-state sell­ers should col­lect sales tax had to do mostly with one com­pany: Ama­zon.com. The on­line giant is said to ac­count for more than 40 per­cent of U.S. on­line re­tail sales. But as Ama­zon has grown, dot­ting the coun­try with ware­houses, it has had to charge sales tax in more and more places.

Pres­i­dent Don­ald Trump has slammed the com­pany, ac­cus­ing it of pay­ing “lit­tle or no taxes” to state and lo­cal gov­ern­ments. But since 2017, Ama­zon has been col­lect­ing sales tax in ev­ery state that charges it. Third-party sell­ers that use Ama­zon to sell prod­ucts make their own tax col­lec­tion de­ci­sions, how­ever.

The case now be­fore the Supreme Court could af­fect those third-party Ama­zon sell­ers and many other sell­ers that don’t col­lect taxes in all states — sell­ers such as jewelry web­site Blue Nile, pet prod­ucts site Chewy.com, cloth­ing re­tailer L.L. Bean, elec­tron­ics re­tailer Newegg and in­ter­net re­tailer Over­stock.com. Sell­ers on eBay and Etsy, which pro­vide plat­forms for smaller sell­ers, also don’t col­lect sales tax na­tion­wide.

States gen­er­ally re­quire con­sumers who weren’t charged sales tax on a pur­chase to pay it them­selves, of­ten through self-re­port­ing on their in­come tax re­turns. But states have found that only about 1 per­cent to 2 per­cent ac­tu­ally pay.

States would cap­ture more of that tax if out-of-state sell­ers had to col­lect it, and states say soft­ware has made sales tax col­lec­tion sim­ple.

Out-of-state sell­ers dis­agree, call­ing it costly and ex­traor­di­nar­ily com­plex, with tax rates and rules that vary not only by state but also by city and county. For ex­am­ple, in Illi­nois, Snick­ers are taxed at a higher rate than Twix be­cause foods con­tain­ing flour don’t count as candy. Sell­ers say free or in­ex­pen­sive soft­ware isn’t ac­cu­rate, more so­phis­ti­cated soft­ware is ex­pen­sive and that col­lect­ing tax na­tion­wide would also sub­ject them to po­ten­tially costly au­dits.

“For small busi­nesses on tight mar­gins, these costs are go­ing to be fa­tal in many cases,” said Andy Pin­cus, who filed a brief on be­half of eBay and small busi­nesses that use its plat­form.

The case now be­fore the Supreme Court in­volves South Dakota, which has no in­come tax and re­lies heav­ily on sales tax for rev­enue. South Dakota’s gover­nor has said the state loses out on an es­ti­mated $50 mil­lion a year in sales tax that doesn’t get col­lected by out-of-state sell­ers.

In 2016 the state passed a law re­quir­ing those sell­ers to col­lect taxes on sales into the state, a law chal­leng­ing the Supreme Court prece­dents. The state, con­ced­ing it could win only if the Supreme Court re­verses course, has lost in lower courts.

South Dakota says the high court’s pre­vi­ous de­ci­sions don’t re­flect to­day’s world. The court first adopted its phys­i­cal pres­ence rule on sales tax col­lec­tion in a 1967 case deal­ing with a cat­a­log re­tailer. At the time, the court was con­cerned in part about the bur­den col­lect­ing sales tax would place on the cat­a­log com­pany. The court reaf­firmed that rul­ing in 1992.

It’s un­clear how the jus­tices might align on the ques­tion this time. But three jus­tices — Neil Gor­such, Clarence Thomas and An­thony Kennedy — have sug­gested a will­ing­ness to re­think those de­ci­sions. Kennedy has writ­ten that the 1992 case was “ques­tion­able even when de­cided” and “now harms states to a de­gree far greater than could have been an­tic­i­pated ear­lier.”

“Al­though on­line busi­nesses may not have a phys­i­cal pres­ence in some states, the Web has, in many ways, brought the av­er­age Amer­i­can closer to most ma­jor re­tail­ers,” he wrote in sug­gest­ing the days of in­con­sis­tent sales tax col­lec­tion may be num­bered. “A con­nec­tion to a shop­per’s fa­vorite store is a click away re­gard­less of how close or far the near­est store­front.”

The As­so­ci­ated Press

U.S. MAIL: In this April 13 photo, pack­ages from In­ter­net re­tail­ers are de­liv­ered with the U.S. Mail in a apart­ment build­ing mail room in Wash­ing­ton. Click­ing “check­out” on an on­line pur­chase could cost more af­ter a Supreme Court case be­ing ar­gued...

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