Previews of Coming Attractions – Sales Taxes on All Those Internet Purchases

Sorry Folks, the Party is Over

For a number of years purchasers have enjoyed evading state and local sales taxes on purchases from Internet store like Amazon.  Yes, we all know that we are supposed to report the purchases and pay the tax on a state income tax return, and a few of us even select the default option and make some payment.  But most folks check the box that says no internet sales took place and hence say they owe no taxes.

The reason that some companies could avoid collecting sales taxes on internet sales was that the Supreme Court had ruled a company had to have some operations in the state in order to be forced to collect the tax.  If a company was truly out of state, no sales taxes were collected. 

It has been more than 20 years since the Supreme Court ruled in Quill v. North Dakotathat a state’s efforts to require tax collections from out-of-state companies violated the Constitution’s commerce clause. It said the necessary “substantial nexus” exists when the out-of-state retailer has a “physical presence” in the state.

But the Supreme Court has declined to review an Appeals Court decision that held that states could force an internet seller to collect the tax even if they had no physical presence in trhe state.   In effect the Court has agreed that the Internet is so pervasive that by simply selling on the Internet a company creates a presence in a state, and so the state can force the company to collect the tax.

This is sad for many people, but it is a fair ruling.  Brick and mortar companies are put at a disadvantage to Internet companies when those companies do not have to charge sales tax, and by not having that revenue state and local governments have to have higher taxes on the rest of the tax payers.  And no this is not a tax increase, just an effort to collect existing taxes.  Conservatives like to say the U. S. in turning into Greece.  Well one problem in Greece is tax evasion, so Conservatives ought to applaud this move in the United States.  But that would require consistency on the part of Conservatives, and everyone knows how they feel about that.

Congress is struggling to set a national standard to clarify things, something that most retailers want, including Amazon.  But since any action may smack of voting for a tax increase, conservatives will likely stop any action.  That will not stop collection of the taxes, it will just mean the country goes about it in a stumbling and bumbling manner.  And that is usually the result when conservative policies prevail.