In Our View: Time to Tax Online Sales

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.

Critics will argue that making it easier to collect tax for online sales is an example of government trying to squeeze taxes from consumers at every opportunity. In truth, however, such a move will only allow states to fairly collect taxes that have been approved by their Legislature and/or voters, closing a loophole that currently lets consumers ignore their legal obligation. In Washington, the public long ago decided that heavy reliance upon sales tax was preferable to a state income tax in order to pay for schools, public safety, and other basic services, but that system only works if states are given the power to collect the taxes that have been agreed upon.

As Kennedy wrote: “The Internet has caused far-reaching systemic and structural changes in the economy. … Today buyers have almost instant access to most retailers via cellphones, tablets and laptops. As a result, a business may be present in a state in a meaningful way without that presence being physical in the traditional sense of the term.”

Today’s marketplace is one without walls, and that has given an unfair advantage to online retailers. Kennedy’s missive effectively distills the issue and sends a clear message to Congress about the need for legislative action. Here’s hoping that he grabbed the attention of lawmakers.