Wednesday, June 27, 2018

Sid Salter: Supreme Court finally brought online sales, use tax law fairness to Main Street

In a 5-4 decision that strangely crossed traditional judicial ideological lines, the Supreme Court last week brought online sales and use tax law fairness to mom-and-pop merchants on Main Street who had long been at a seven percent price disadvantage in Mississippi in competition with out-of-state online retailers.


Was this ruling a liberal versus conservative situation? Hardly. The new ruling was written by Justice Anthony Kennedy and overturned the 1992 Quill decision by the court that declared states could only collect sales taxes from companies that had a physical presence in their states.

Kennedy was a member of the court in 1992 and concurred with the Quill decision back then. So did conservative Justice Clarence Thomas. Both Kennedy and Thomas voted for Wayfair, joined by conservative Justices Alito, Gorsuch, and liberal Justice Ruth Bader Ginsberg.

The new ruling came in the South Dakota v. Wayfair case in which the majority of the court ruled that online retailers must collect state taxes regardless of whether the retailer has a physical presence or “nexus” in the state – meaning that small retailers get a modicum of tax fairness again giant online retailers competing with them for the same customers.

Let’s say a small, family owned hardware store in Pontotoc sells a customer from Algoma a hammer for $8. Mississippi law requires that the store collect seven percent sales tax on the sale of that hammer or 56 cents. Under state law, the seller must then remit the 56 cents to the State Department of Revenue.

Prior to the June 21 high ruling, an online retailer in Kentucky could sell our friend in Algoma the same hammer for $8, but was not required to charge the customer any Mississippi sales tax. Small Mississippi retailers have been whipsawed by that disparity and it is part and parcel of the trend of small businesses closing because of online competition – which erodes jobs and the rest of the state’s tax base as a consequence.

In the Wayfair ruling, the court’s majority ruled that: “Quill put local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers. Remote sellers can avoid the regulatory burdens of tax collection and can offer de facto lower prices caused by the widespread failure of consumers to pay the tax on their own.”

More retail stores closed last year across the U.S. than in any year in the nation’s history. Commercial real estate firm Cushman & Wakefield project that nationally more than 12,000 retailers will close in 2018, up from about 9,000 in 2017. Familiar retailers such as Sears and J.C. Penney have already shuttered stores in Mississippi.

With fewer retail outlets collecting state sales taxes, the reduction likewise accrues to sales tax diversions from the state to local governments. The numbers belie significant impact in Mississippi as in the rest of the country.

In Fiscal Years 2016 and 2017, sales tax collections accounted for 38 percent of the state’s General Fund receipts as the State Department of Revenue collected $2.062 billion in sales taxes in FY 2016 and $2.055 billion in 2017. Twenty years ago, that General Fund percentage was 41 percent.

Sales tax is a regressive tax that hits the poor harder than the wealthy. Frankly, in 1932, the sales tax was a way to more heavily tax those who did not own property in Mississippi at the time – and the majority of that segment of the population were black citizens. Is it unfair to surmise that the 1932 sales tax in Mississippi was aimed squarely at Mississippi’s poorest citizens, regardless of race? It’s an unavoidable, inescapable conclusion.

That said, every penny of sales tax due should be collected and being wealthy enough to afford a computer and ISP to facilitate shopping online to avoid sales tax should not have been an excuse. The Supreme Court ruling last week estimated that the Quill decision costs states between $8 billion and $33 billion in tax revenues.

How many bridges would Mississippi’s share of that have repaired? How many miles of highway could have been paved?

Finally, let’s avoid the red herrings. The Wayfair ruling is not a tax on the Internet. It’s full collection of a sales/use tax that’s been on the books in Mississippi since 1932. And it’s not an activist court run amok, either. It’s the judicial branch righting a wrong after decades of congressional sloth and inaction on the issue fueled by political self-preservation.

Sid Salter is a syndicated columnist. Contact him at sidsalter@sidsalter.com

Kingfish note: "That said, every penny of sales tax due should be collected and being wealthy enough to afford a computer and ISP to facilitate shopping online to avoid sales tax should not have been an excuse." Um, Sid, your age is showing.  It's people ordering online on their phones now.  :-)   That sounded like something Mac Gordon would write.

22 comments:

Anonymous said...

Do these online retailers pay state income taxes on the revenue gained from out of state purchasers? If they are going to tax the consumer they should be able to tax these businesses as well.

Anonymous said...

All very true but the extra revenue doesn't make it back to the home towns of the mom and pop stores, it all ends up in state general funds.

Anonymous said...

It's not the sales tax, it's the convenience of having what I need show up on my doorstep in two days. And not having to deal with surly employees.

These "mom and pop" shops that are being pushed to extinction (I suppose no handicapped children or nuns could be found who were going out of business due to the online sales tax issue) are closing because they cannot or will not adapt to the new digital economy.

This isn't about saving Main Street, so please drop that line of sanctimony Sid.

Anonymous said...

Frankly, I can’t understand how anyone can see this as a bad ruling. It is in fact long overdue, and is a big win for states and cities that have been denied this revenue stream. Yes, I understand that sales tax *is* a regressive tax, and that governments are very efficient at spending money where its needed. But the sales tax isn’t going away anytime soon, if ever, so it needs to be applied across the board regardless of the physical location of the merchant.

Madison Rulz said...

1. Agree that it's only fair that sales tax be collected for online sales.

2. Disagree that it will move the needle for Main Street. Online retail is about convenience, not avoiding sales tax. Why would I go to the local retailer in hopes that they have what I want, when I can order it on Amazon in 2 minutes and it will be on my doorstep in 2 days?

Anonymous said...

"And it’s not an activist court run amok, either. It’s the judicial branch righting a wrong after decades of congressional sloth and inaction on the issue fueled by political self-preservation."

It is not judicial activism for a court to "right a wrong" because the legislative branch did not act? Isn't judicial "correction" of policy precisely what we call activism?

Anonymous said...

I don't see how you people applauding paying more taxes can operate your computers with your heads so far up your asses.

Anonymous said...

I've asked this question before on this website, but here goes again:

What means do these States (specifically our State) have to ensure that the sales taxes collected by the online retailers from their customers are actually remitted to the State? With no physical presence in the State it's not like MSDoR can go padlock their store as they can do to a local retailer that doesn't remit properly.

I suspect that compliance will be very low, but it won't keep the online retailers from collecting sales tax from the customers.

Anonymous said...

7:46,

Will it now since online tax collection can be classified as "sales tax"? Currently it is collected as "use" tax, which does not go back to home town. Curious as to how that will be interpreted, and if done as "sales tax" how that will be administered and function?

Anonymous said...

Now that the online sales tax matter has been settled let's see if we can guess which canard Salter will use next to explain away the demise of local small retailers.

Anonymous said...

9:39: It's the Supreme Court correcting a previous supreme court ruling that is now obsolete in light of new technology, not judicial activism. While I am certainly on board with the idea of Congress fixing many messes, I am highly skeptical of the nebulous "dormant commerce clause" arguments.

Anonymous said...

MSGOP RINO Gregg Harper voted for illegal immigrant amnesty today. Kelly and Palazzo voted NO.

Anonymous said...

I can't believe there are morons and imbecilic airheads like 9:49 that don't realize taxes are necessary for our country to exist.

Anonymous said...

@ 9:49

I suspect I am paying mine, yours and several more of your ilk's share of taxes. I doubt that you pay a dime...many socialist don't....and never will. BTW how do you post with your head up your ass ?

Dee Ray said...

Ah...The guy in Algoma would have paid more than fifty six cents for shipping the hammer thereby cancelling out this idiotic comparison.

People like Salter who sit around and dream up nutty scenarios don't seem to know that people who shop online have no concern about an extra tax or whether 'mom and pop stores' (which don't even exist) are getting an imaginary fair shake.

"Oh, damn...now that there's this supreme court ruling, I guess I'll get dressed, drive to town, fight traffic and find a place to park so I can buy that hammer locally."

Sid is not only 'showing his age', but his irrational thought process.

Anonymous said...

So how many people that posted above that this is "fair" own a small business in Mississippi?

It's just a money grab. It has nothing to do with "fair".

I am a small business owner and I oppose this! Keep the government out of the internet!

Anonymous said...

Actually, Mississippi has a use tax that no one pays, so this will ensure the tax is collected. In Mississippi, it’s not an additional tax.

Anonymous said...

Half of this tax will be earmarked to fund education with the other half targeted to float PERS, right?

Anonymous said...

I can't believe there are morons and imbecilic airheads like 6:52 that don't realize our country existed for years and decades without sales tax. Sales Taxes started in the 1930s. I guess America didn't exist before then.

Anonymous said...

Do these internet companies file state income tax returns?

Anonymous said...

I guess our elected officials and political commentators don't shop for themselves.

Few consumers shop online to save state tax .

It's convenience. Their time is more valuable than the tax savings.

Why do you think Amazon is working so hard to make "same day" a reality ?

Why do you think waitr.app and Kroger Click exists?

Whatever loss occurred during the earliest years will not offset other declines in revenues. And, those in retail will see zero change.




Anonymous said...

There are some things stodgy Sid knows about. Technology isn’t one of them. Sit down Sid before you make a sanctimonious fool of yourself, let those who know about these things handle this one.

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