Bricks-and-mortar retailers have long complained that adding sales taxes to the price of goods they sell puts them at a competitive disadvantage with Internet retailers, most of whom don’t collect sales taxes.
On the other hand, many Internet retailers say they don’t mind collecting sales taxes, but it is nearly impossible to deal with the 10,000 different tax jurisdictions in the U.S., each with different tax rates on many different products.
Meanwhile, state and local governments that depend on sales tax revenue have also chafed over the loss of tax revenue as on-line sales have grown dramatically over the last decade.
So is it possible to forge a compromise and solve this sticky taxation question that has stumped policymakers for many years, even going back to the days of catalogue sales?
One key business executive with a big stake in the outcome of this issue thinks it can be resolved, but it will require bi-partisan, common-sense congressional action. It can’t be solved just at the state level with a patchwork of inconsistent and varying state laws.
Jonathan Johnson, president of Overstock.com, one of the nation’s largest Internet retailers, recently told UtahPolicy.com that a good place to start forging consensus on the issue is HJR14, a resolution passed by the Utah Legislature earlier this year.
That resolution, sponsored by Rep. Steve Eliason in the House and by Sen. Wayne Neiderhauser in the Senate, calls on Congress “to pass legislation for the fair and constitutional collection of state sales tax by both in-state and remote sellers,” based on the following principles:
1) State-provided or state-certified tax collection and remittance software that is simple to implement and maintain;
2) Immunity from civil liability for retailers utilizing state-provided or state-certified software in tax collection and remittance;
3) Tax audit accountability to a single state tax audit authority;
4) Elimination of interstate tax complexity by streamlining taxable good categories;
5) Adoption of a meaningful small business exception so that small businesses that sell remotely are not adversely affected by the legislation;
6) Fair compensation to the tax-collecting retailer.
The resolution says that following those principles will foster consistent standards for tax collection on all sales, and provide fair treatment among “traditional brick-and-mortar retailers, brick and click retailers, catalogue retailers, and pure-play Internet-only-based retailers.”
“We do need to level the playing field,” said Johnson. “We aren’t opposed to collecting taxes, but there has to be a way to do it that is practical and doesn’t impose enormous burdens on on-line businesses. It is nearly impossible for us to remit taxes to 10,000 tax jurisdictions, especially because their tax rates vary widely, even product to product. There needs to be consistency and reasonable uniformity.”
A great deal of activity has occurred on this issue for at least two decades, but a solution has been elusive.
In 1992, in Quill vs. North Dakota, the U.S. Supreme Court said states could force a retailer to collect sales tax only if the retailer had a physical presence in the state. But the ruling said Congress could expand taxation. States then started passing what Johnson called “Amazon taxes.” If a retailer had any “affiliate marketers” in a state, such as coupon aggregators, loyalty programs, or even bloggers who provided logos and links to a retailer, then states claimed that was enough of a physical presence to force the retailer to collect sales tax.
Amazon and Overstock.com challenged the first of those laws. “We had to essentially fire 10,000 affiliate marketers,” Johnson said. While Amazon and Overstock.com lost at the trial court level, the appellate told the trial court to reconsider its ruling. That case is still pending.
A better solution than litigation is federal legislation that incorporates the principles outlined in the resolution from the Utah Legislature, Johnson said. Both online retailers and bricks-and-mortar retailers supported the resolution, he said.
“It’s a good approach, a good compromise,” Johnson said. “Its principles should be incorporated into federal legislation. It’s the only way we will solve this problem.”
Given the politics and dysfunction in Washington right now, it may be a while before Congress acts. But it’s high time to get this long-simmering issue resolved.