At first glance, a U.S. Supreme Court decision last week seems to be a victory for those who want to continue to avoid paying state and local sales taxes and for the online merchants who sell to them.
But the court’s real message is in the fine print: Fix this mess. It’s not fair to make buyers at brick-and-mortar stores pay sales tax and let online buyers avoid it. Plus it’s a competitive disadvantage for store owners who must charge the tax.
The justices didn’t come right out and say that, but their implied message is that even though the case was technically decided in favor of the online merchants, it would be best if a lower court found a way to re-decide against them. If an ensuing court case were to reach the high court, it would have the opportunity to rule in favor of sales tax collection.
An even better idea than legislating by judicial action would be for Congress to finally move on a longtime proposal creating a national standard for online sales tax collection. That legislation has languished for years.
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The case decided last Tuesday is Direct Marketing Association v. Brohl out of Colorado. To make a long, convoluted court battle a bit less so, Colorado lawmakers had passed a law requiring that online sellers report information to the state about who had made out-of-state purchases and how much they spent. The state could then crack down on buyers who weren’t paying sales tax. The merchants sued to stop the law from taking effect.
Washington was one of about two dozen states that objected to the lawsuit. This state requires buyers to pay sales tax on online purchases but has no way to know who’s buying what without information from the sellers. Buyers aren’t volunteering to pay the sales tax on their e-purchases, and state and local governments nationwide are losing out on an estimated $23 billion in annual tax revenue.
That’s revenue needed to pay for basic services, everything from education and public safety to filling potholes. Cities like Tacoma might not be in such dire straits with their road conditions if they were collecting the full amount of sales tax they’re due.
Back in 1992, before the explosion of Internet sales, the Supreme Court ruled that online businesses only had to collect state sales tax if they also had a brick-and-mortar presence in the state. In last week’s decision, Justice Anthony Kennedy noted that it’s time for the court to reconsider that position, which has caused “a startling revenue shortfall in many states. … States’ education systems, health care services and infrastructure are weakened as a result.”
Kennedy gets it. Too bad Congress doesn’t. It’s time to level the playing field for online and brick-and-mortar businesses.