In­ter­net sales tax fight reaches Supreme Court

USA TODAY International Edition - - MONEY - Richard Wolf

WASH­ING­TON – Eric Sin­clair’s fam­ily-owned fur­ni­ture busi­ness dates back five gen­er­a­tions and 130 years. These days, he fig­ures his three stores in eastern South Dakota op­er­ate at a 6.5% dis­ad­van­tage to com­peti­tors who sell only on­line.

At least once a week, he says, a cus­tomer who al­ready has been helped with prod­uct se­lec­tion and room de­sign in one of his Mont­gomery’s show­rooms brings up prices found on the In­ter­net, where sell­ers of­ten don’t tack on state and city sales taxes.

“They want to know if we can beat the price,” Sin­clair says. “It re­ally puts me on an un­level play­ing field.”

More than 1,100 miles away in Pow­der Springs, Ga., Laurie Wong bal­ances the books at her 15-year-old non-profit thrift store and food pantry by sell­ing more than 2,000 prod­ucts on eBay. With rel­a­tively low sales and no phys­i­cal pres­ence in other states, she es­capes their sales tax laws.

Sin­clair and Wong are among mil­lions of mer­chants and con­sumers na­tion­wide who could be af­fected by the Supreme Court’s de­ci­sion in a case be­ing ar­gued Tues­day — one pur­pose­fully cre­ated by lawyers for South Dakota to up­end two high court prece­dents dat­ing back 50 years.

When those rul­ings ex­empted re­mote re­tail­ers from hav­ing to pay sales taxes in other states, mail-or­der cat­a­log com­pa­nies were the main ben­e­fi­cia­ries.

To­day, on­line sales are grow­ing at four times the rate of to­tal re­tail sales, and state and lo­cal govern­ments in 45 states are los­ing bil­lions of dol­lars an­nu­ally in taxes. (Alaska, Delaware, Mon­tana, New Hamp­shire and Ore­gon do not have sales taxes.)

If the high court clears the way for most In­ter­net sales taxes, on­line re­tail­ers could face some 10,000 tax ju­ris­dic­tions with vary­ing rates and rules.

“If the Supreme Court ... just says, ‘We were wrong be­fore, we’re not re­ally go­ing to set lim­its or pa­ram­e­ters,’ you could see a lot of dis­rup­tion,” says Joseph Bishop-Hench­man, ex­ec­u­tive vice pres­i­dent of the non-par­ti­san Tax Foun­da­tion.

That would be a set­back for Re­flec­tions of Trin­ity, where $500,000 in an­nual sales pays for 600 boxes of gro­ceries de­liv­ered weekly to those in need, among other acts of char­ity.

“We’d be tied up in so much pa­per­work,” Wong says. “It would take sig­nif­i­cantly from our rev­enue base.”

The bat­tle over on­line sales taxes rep­re­sents an­other in a string of cases that forces the Supreme Court to bal­ance the Con­sti­tu­tion and its own prece­dents against ad­vances in tech­nol­ogy.

States have done their best to col­lect taxes on res­i­dents’ out-of-state pur­chases. More than 20 states de­fine a seller’s phys­i­cal pres­ence as in­clud­ing any af­fil­i­ated web­site. Ten states re­quire out-of-state sell­ers to no­tify buy­ers and in­form states of the un­paid sales taxes.

Per­haps tip­ping its hand, the Supreme Court in 2015 up­held Colorado’s law re­quir­ing those no­tices.

And when the case re­turned to the U.S. Court of Ap­peals for the 10th Cir­cuit, Judge Neil Gor­such said the half­cen­tury-old prece­dent was likely to “wash away with the tides of time.”

Back in Ge­or­gia, Wong says she wants to con­trib­ute her fair share of l sales taxes. “But they need to be fair,” she says, “and look at the bur­den that they’re putting on small busi­ness.”

The Supreme Court hears a case Tues­day that could lead to more sales taxes on In­ter­net pur­chases. EPA-EFE

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