The U.S. Supreme Court might as well have sent up flares, sounded a foghorn, and waved the flag. When the court ruled recently on a case ostensibly involving sales tax on Internet purchases, Justice Anthony Kennedy did all he could to grab the attention of Congress.
The unanimous ruling, in Direct Marketing Association v. Brohl, seemingly provided a victory for online merchants who wish to continue avoiding paying state and local sales taxes. The decision upheld the right of retailers to challenge a Colorado law requiring out-of-state merchants to report purchases to state tax authorities, but Kennedy made clear that the issue requires more attention to detail in redressing a 1992 decision in Quill Corporation v. North Dakota.
“It is unwise to delay any longer a reconsideration of the court’s holding in Quill,” Kennedy wrote. “A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.” Kennedy noted that when Quill was decided, mail-order sales in the United States totaled $180 billion, and by 2008 e-commerce sales alone totaled more than $3 trillion.
With that, the court touched upon an issue that long has been prominent in Washington. State Rep. Sharon Wylie, D-Vancouver, in the past has promoted legislation designed to help the state collect sales tax for online purchases as the state’s tax system tries to keep up with changes in how consumers shop these days. The crux of the matter is that, by making purchases online, consumers often are able to avoid the tax they would pay if shopping at a brick-and-mortar store. The 1992 Quill ruling determined that online merchants must collect such tax only if they have a brick-and-mortar presence in the community, creating an unfair advantage for online sales and harming communities that rely upon sales tax to pay for basic services.
Congress has dabbled with addressing this discrepancy, with the Senate in 2013 supporting the Marketplace Fairness Act, but the efforts have stalled. Now, Kennedy’s plea for equity should serve as an impetus for Congress to revisit the subject and level the playing field for marketers that rely upon traditional means of selling their product.