Paul L. Caron

Saturday, January 20, 2018

Holderness:  The Next Tax Reform — Internet Sales Tax

The Hill op-ed:  The Next Tax Reform: Internet Sales Tax, by Hayes Holderness (Richmond):

On Jan. 12, the U.S. Supreme Court decided to hear the case of South Dakota v. Wayfair. If you haven’t been following along, this is a big deal and may affect households across the country — it’s about internet sales taxes.

The Wayfair case pits the “Kill Quill” movement  against internet retailers. As riveting as it sounds, this isn’t a new Quentin Tarantino film about sales taxes. The Kill Quill movement is a group of state tax administrators, brick-and-mortar retailers and their allies, whose goal is to overturn the ruling in the 1992 Supreme Court case of Quill Corp. v. North Dakota. With the current court agreeing to hear the Wayfair case, Quill looks to be on its last breath.

Why has Quill attracted a whole aggressively named movement against it? The court’s decision in this case said that a state cannot make a retailer collect sales taxes if the retailer does not have a physical presence in the state. Quill is the reason you aren’t charged sales taxes on some internet purchases. It’s also the reason the states lose billions of sales tax revenues each year. A recent paper by University of Tennessee professors Donald Bruce, William F. Fox and LeAnn Luna [E-tailer Sales Tax Nexus and  State Tax Policies, 68 Nat'l Tax J. 735 (2015)] observed that those losses were estimated to be $11.4 billion in 2012 and were “likely continue to grow rapidly, at least for the next several years."

Not only that, one only has to look to the rise of Amazon to see how taking advantage of the physical presence rule gives internet retailers a leg up on their brick-and-mortar competition. Though Amazon now collects taxes in every state, other retailers — such as Wayfair, Newegg  and, the plaintiffs in the Wayfair case — still rely on the rule to avoid tax collection obligations. ...

Hard work remains for the Kill Quill movement, but the end of its mission is in sight. I’d wager that the court is ready to put Quill to rest and establish more basic limitations on the states’ ability to tax internet sales. But even if the Kill Quill movement fails in the Wayfair case, you can expect the battle over internet sales taxes to continue — the movement is as tenacious as The Bride, the protagonist of Tarantino’s two-part “Kill Bill” movie. Keep an eye on this one, or maybe just on your online checkout carts.

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Notice that Amazon began collecting and remitting sales tax in all States which it reach an economy of scale that collection and remittance became a competitive advantage.

Posted by: Tom N | Jan 20, 2018 8:16:57 PM