Republicans Push Internet Sales Tax...
The GOP’s Internet Tax
Some Republicans want to stuff a state sales web tax in
the omnibus.
By The Editorial Board March 15, 2018 6:44 p.m. ET
Republicans have spent the last year cutting taxes and
regulations, which hasn’t been easy. But now some Members of Congress want to
blunt their handiwork by passing an online sales tax. Yes, they actually believe
this would be good policy and politics.
A large faction of House Republicans are pressing GOP
leaders to attach legislation to the omnibus spending bill that would let
states collect sales tax from remote online retailers. South Dakota Rep. Kristi
Noem’s legislation, which has 50 co-sponsors, would let some 12,000
jurisdictions conscript out-of-state retailers into collecting sales and use
taxes from their customers. A bipartisan companion bill in the Senate has 27
co-sponsors.
The Supreme Court’s 1992 Quill decision forbids state and
local governments from requiring businesses without a “physical nexus”—that is,
property or employees—to collect sales tax. States complain that this
restriction puts brick-and-mortar stores at a competitive disadvantage and
reduces government revenues. All political protectionism is local.
But online purchases make up less than 10% of all retail
sales, and only a sliver is untaxed. Seventeen of the 18 largest retailers on
the web by 2016 had already begun collecting sales taxes on all of their
customers’ purchases. The exception was home-goods retailer Wayfair.
Big retailers like Amazon and Walmart have the resources
to comply with disparate tax rules across thousands of jurisdictions. Small
businesses don’t. In New York City, all clothing—save jewelry, costumes and
some athletic equipment—that costs less than $110 is exempt from sales tax.
Chicago taxes bottled water, soda, candy and groceries all at different rates.
Contrary to political lore, sales tax revenues have been
increasing steadily in states with healthy economies. Over the past five years,
Florida’s sales tax revenues have grown 27%. South Dakota’s are up by nearly
30% since 2013. This is noteworthy since politicians from states without income
taxes complain that Quill could impel them to pass one to raise revenue.
As for brick-and-mortar stores, most nowadays sell over
the web too. Those that are struggling—e.g., Sears and Toys “R” Us—are
overleveraged and didn’t adapt fast enough to changes in consumer behavior or
tastes. People who shop online generally do so for the convenience rather than
incremental tax savings, which can be negated by shipping costs.
Nonetheless, Quill has become a bogeyman of politicians
on the left and right. In his Direct Marketing Association v. Brohl (2015)
concurring opinion, Justice Anthony Kennedy echoed their laments that Quill was
“now inflicting extreme harm and unfairness on the States.” His opinion
emboldened states to pass a patchwork of “Kill Quill” bills that are
essentially gutting it even without a change in federal law.
Twenty or so states have adopted “click-through” taxes to
hit remote retailers that have contracts with local businesses. In 2016 South
Dakota invited the High Court to revisit Quill by extending its sales tax to
out-of-state sellers. Other states have followed. The Court will hear that
case, Wayfair v. South Dakota, next month, and most expect Justice Kennedy to
join the liberal majority to overturn Quill.
But some Republicans warn that the Court could divine a
new standard from whole cloth that could create confusion. Worse, the Court
could enable broader taxation and regulation of out-of-state businesses. This
is what many states want to happen. The Justice Department has argued for a
“virtual” presence standard that would make a hash out of the Commerce Clause,
which gives Congress the authority to regulate interstate commerce.
Ergo, many Republicans say Congress must intervene. Yet
the legislation that they want to add to the omnibus spending bill next week
won’t necessarily moot the case or rein in errant Justices.
If the status quo is doomed, then a better alternative is
House Judiciary Chairman Bob Goodlatte’s compromise with California Democrat
Anna Eshoo, which would establish a mechanism for states to collect taxes from
out-of-state retailers through a national clearinghouse. His bill would
simplify compliance for small retailers and prevent states from harassing
out-of-state businesses—thus preserving the constitutional principle of no
regulation without representation.
The real reason some Republicans in Congress are now
rushing to pass their kill Quill bill is that they want to get credit for axing
the Court’s 1992 decision with retailers at home. But stuffing such an
important policy change inside a huge spending bill with little debate would be
a political scam. Raising taxes on small business and consumers won’t be a good
look for Republicans in November, nor an inducement for investment and growth.
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