Internet sales tax fight reaches Supreme Court
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