Magazine article Information Today

The Online Sales Tax Question Is Back

Magazine article Information Today

The Online Sales Tax Question Is Back

Article excerpt

Yesterday's local newspaper reported on the demise of yet another venerable retailer, Carson Pirie Scott, a Chicago-based department store chain with a more than 160-year history. Now part of the Bon-Ton department store chain, Carson Pirie Scott is a victim of the bankruptcy of Bon-Ton, one of several major retail bankruptcies in recent years that have included those of Toys "R" Us, Claire's, Gander Mountain, hhgregg, and RadioShack. Longlived major retailers such as Sears, J.C. Penney, and Macy's seem to be holding on, but some are clearly close to the end of their rope. Many pundits have come to call this trend the "retailpocalypse."

The Retailpocalypse

Much of this retailpocalypse is being "blamed" on the rise of ecommerce, although one person's blame is another's fortune. The development of the internet as a commercial marketing platform and the growth of early pioneers such as eBay, Amazon, and Overstock have demonstrated the ease by which consumers can make online purchases, originally from their computers and now from their phones and tablets.

A major factor in the rise of ecommerce has been the combination of free or discounted shipping and no sales tax. Most states charge a tax on the purchase of consumer goods at the retail level, with these taxes often supplemented by local taxes. That extra 7%, 8%, or more that we pay at the cash register is technically our obligation as the consumer. We are the ones paying the tax on the purchase. But the practical solution of having the retailers collect the taxes on their daily, weekly, or monthly sales, then remit them to the state (on our behalf) created a structure wherein when a retailer does not ask for the sales tax, consumers believe they are getting a bargain.

Quill v. North Dakota

Thanks to a 1992 U.S. Supreme Court decision, online retailers are not legally obligated to collect and remit sales tax other than in the state or states where they are physically located. This ruling, in the case Quill Corp. v. North Dakota (supreme.justia.com/cases/feder al/us/504/298/case.html), occurred in the days of mail-order catalogs. The court said that states could not require an out-of-state retailer to collect and remit sales tax because it would conflict with the Constitution's commerce clause, which limits a state's ability to "interfere" with interstate commerce. The only exception that was created was for when the company has a physical presence in the state, such as a store, sales office, or warehouse.

The rise of ecommerce has led to two significant effects from this lack of an obligation to collect sales tax. The first is the retailpocalypse, in that a tax-free online sale is taking a sale away from a local store. The second is that states have been increasingly complaining about the lost revenue from the unpaid sales taxes. Again, technically, it is the consumer who pays the sales tax, but absent the collection by the retailer, it often simply doesn't get paid.

Congressional Solutions Have Bogged Down

Both Congress and states have made various attempts in recent years to enact tax legislation that would work around the Quill decision. Congressional attempts to establish a standardized means of taxing online sales have been bogged down due to the tension among advocates for fairness and digital and brick-and-mortar-based merchants, advocates for a tax-free internet to foster its development, and others who hold widely disparate views on tax policy generally. …

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