Leveling the playing field

Founded in 1994, Amazon.com is today the heavyweight of online retail shopping. It reported $136 billion in net revenue last year. In addition to its staggering sales growth, deeply discounted deals and perks such as free shipping, Amazon also has made headlines on the subject of sales tax — often for not collecting it. As recently as 2011, for example, Amazon collected sales tax in only five states. As of earlier this year, however, that list had grown to include all 45 states that have a sales tax. Maine was among the last states to join that list.

Why weren’t Amazon and other online retailers collecting sales tax all along? The answer stems from Quill Corp v. North Dakota, a 1992 U.S. Supreme Court case. In that ruling, the court said only companies with a physical presence inside a state had to collect sales or use tax there. In the years that followed, as online commerce grew, e-merchants successfully used the ruling to dodge collecting sales tax.

That represented a significant loss for state coffers around the country. The National Conference of State Legislatures put the loss at $23.3 billion in 2012. While states tried to get those shoppers to pay the appropriate amount of sales tax as a use tax on their income tax forms, that effort flopped.

“As you can imagine, between the complexity and the insanity of this rule, most consumers ignore the use tax,” “Forbes” reported earlier this year.

Moreover, online merchants not having to collect sales tax was unfair to the brick-and-mortar stores, like Sherman’s Books, that already were competing with the aggressive pricing strategies of Amazon and others.

“Maine businesses can go toe-to-toe with the very best out-of-state companies, provided they are competing on an equal playing field,” said George Gervais, commissioner of Maine’s Department of Economic and Community Development, in March when Amazon announced its decision.

Other steps could include Amazon collecting sales tax on all sales on its site. Sales through Amazon’s third-party vendors, about half of their volume, currently are not included for sales tax collection.

Amazon has taken a big step in the right direction. Not every company is taking the same approach, however, as evidenced by a recent court case in South Dakota. There, three companies — Overstock.com, Newegg and Wayfair Inc. — took the state to court when it tried to require them to collect sales tax on items sold to South Dakotans. The state’s high court recently ruled in their favor.

The matter now looks likely to head back to the U.S. Supreme Court, but that is not where the debate would be best settled. Congress should take action to require all retail businesses, whether they have four walls and a storefront or are floating somewhere in the cloud, to collect all appropriate sales taxes everywhere. Indeed, the invitation for Congress to do so was extended a quarter of a century ago.

“The underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve,” Justice John Stevens wrote in his 1992 Quill decision.

The same technology that has enabled the exponential growth of Amazon and others has made the once-burdensome business of collecting state sales taxes easier. Amazon has shown that it can be done. Now Congress needs to show that it, too, can act.


Leave a Reply

Your email address will not be published.