Yesterday's rain dashed the last of the cherry blossoms from the trees here in Washington, restoring the banks of the coffee-colored Potomac to their customary dreariness. "What are the roots that clutch, what branches grow out of this stony rubbish?" Good questions, Mr. Eliot. Around here it's legislation and taxes. Like the Main Street Fairness Act, a measure that would allow state governments to collect billions in taxes from online (and other remote) sellers. Supporters say the measure could be introduced in the next few weeks. No more tax-free Amazon purchases? Mr. Eliot, your take on April was prescient. Very cruel indeed.
Just to be clear, I'm talking about that sales taxes that are due on online purchases. You and I are obligated to pay those taxes, but few of us do so. States can't constitutionally collect the taxes from sellers that lack a substantial nexus with the online buyer's state, a consequence of the Supreme Court's decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Congress can fix the Quill problem but, so far, it hasn't.
A bit of rhetorical groundwork for passing the Main Street Fairness Act was laid yesterday with the release of a State and Local Government Sales Tax Revenue Losses from Electronic Commerce at a meeting of the Streamlined Sales Tax Governing Board's executive committee. The report estimates that, between now and 2012, states that impose sales taxes will lose as much as $52 billion in uncollected taxes on e-commerce transactions. That's a lot of money to cash-strapped state and local governments. The report makes several arguments for the unfairness of the status quo:
- states are entitled to the tax revenue under current law, they just can't effectively enforce the tax obligation without congressional assistance;
- state sales tax considerations are skewing business decision-making, with some businesses locating operations based on tax considerations rather than operational efficiency;
- lack of enforceable state sales tax regime puts brick-and-mortar businesses at an unfair advantage relative to online businesses; and
- the status quo is regressive, because poor purchasers are more likely to patronize brick-and-mortar businesses where state sales taxes are collected.
The report was written by Donald Bruce, William F. Fox, and LeAnn Luna, all of the University of Tennessee. More information about the Streamlined Sales Tax Project is available here.
Follow me on Twitter at @bnatechlaw
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