Nearly 20 years ago, the U.S. Supreme Court issued its decision in the seminal case of Quill Corp. v. North Dakota. Quill (1992) confirmed the standard that a retail business must have “physical presence” in a state before that state can require the retailer to collect and remit the state’s sales tax from customers in that state.
Quill involved mail order purchases; the decision gives no mention or consideration to the just-developing online sales market of the time. The court concluded that requiring an entity with no substantial nexus, or meaningful physical presence, in the state to collect and remit the state’s tax constitutes an unjustified burden on and interference with interstate commerce.
Quill is considered fully applicable to online sales. But neither Quill nor the Constitution prevents Congress from taking action to require online retailers to collect a state’s sales tax.
In 1992, online sales were a minuscule segment of the market. They now represent over 20 percent of all sales and that percentage is growing at about 15 percent annually.
It is important to remember that online sales taxes would not be a new tax. Sales taxes, in the form of use taxes, are currently owed on every retail purchase made over the Internet—they’re just not being paid. In addition, this is not a tax on Internet use; it is a tax on purchases—the same tax you pay when you go into the store, and a tax that you are legally obligated to pay now.
State revenue people, of course, care a lot about this issue because it means billions in lost tax collections. Estimates run as high as $25 billion nationwide each year. (Sales taxes make up around 30 percent of all state tax revenue).
There has been an organized effort since 1999 to prompt Congress to take action in response to Quill, and the Streamlined Sales and Use Tax Agreement (SSUTA) was adopted in 2002.
Currently, every state that has a sales tax, except Colorado, participates in the effort in some fashion. But only 24 of the states are “full members,” meaning they must regularly amend their statutes to maintain compliance with the administrative procedures, definitions, etc., established by the SSUTA Governing Board, on which Indiana’s own Sen. Luke Kenley, R-Noblesville, serves as president.
These states represent 33 percent of the U.S. population. Outside of the 24 full member states, there is little uniformity.
This is where the Main Street Fairness Act comes in. The legislation was first proposed in 2009 and was reintroduced on July 1. It would give SSUTA members federal authority to force the online retailers to collect sales tax in their states. Passage would surely induce non-SSUTA states to quickly join in so they, too, could require collection. Quill would be dead for SSUTA-compliant states.
Can Main Street get passed by our present, seemingly “can’t agree on anything” Congress? Well, maybe. The issue is a tax issue, making it volatile and potentially subjecting it to opposition from the “no tax of any form” groups. But to repeat, this is not a new tax—just one that isn’t being paid.
My suggestion is that the present state of the law is serving citizens and businesses alike inadequately and that maintaining the status quo is irresponsible. This is a federal issue and deserves a federal resolution. Although too many people would like to consider the Internet a tax-free zone, it should not be when it comes to sales transactions on which taxes are due.
The time has come for Congress to step up and do something positive for their local businesses, their states and their constituents: Pass the Main Street Fairness Act, kill Quill and move state taxation into the 21st century in the name of fairness to all involved.•
Waltz is vice president of taxation and public finance for the Indiana Chamber of Commerce. He can be contacted at 264-6887 or [email protected].