The Interstate Tax Grab

WSJ editorial.

"Online commerce makes up less than 10% of retail sales, and a 2017 report by the Government Accountability Office said 87% to 96% of sales by the top 100 online retailers are taxed. Amazon collects sales tax on all customer purchases, as do Target , Walmart , Costco and Sears. The major exceptions are small businesses that sell on eBay and Etsy.
 
GAO estimates that untaxed online sales make up between 2% and 4% of state and local sales tax revenues. Sales tax growth has been robust in states with healthy economies. South Dakota’s sales tax revenues have grown more than 5% annually over the last five years. Between 2012 and 2017, state and local sales tax revenues grew by a quarter."

"Some 12,000 jurisdictions in the U.S. impose sales tax, twice as many as in 1992, often with disparate rules and rates. Illinois taxes Twix and Snickers at different rates. Twix is taxed at a lower rate because it includes flour and thus qualifies as “food.” Snickers is considered candy. In New Jersey, yarn is tax-exempt only if used for knitting. How are retailers supposed to divine a buyer’s purpose?

Installing and maintaining software to comply with 12,000 tax regimes could break small businesses. One business told GAO “they had just dealt with an expensive audit that lasted 3 years” and “do not have the resources to comply with similar audits from other jurisdictions.” Businesses that collect too little tax can face stiff penalties including jail time. If they collect too much, they get slapped with class-action lawsuits.

The Justice Department has filed a brief supporting South Dakota, taking the odd position that Quill should be overturned because online retailers benefit from government-built broadband. Seriously? According to Justice, businesses that operate a website have a “virtual” presence everywhere. The European Commission has invoked the same argument to impose a digital tax on Silicon Valley tech giants, which the Trump Administration has denounced as an extraterritorial tax grab.

If the Court were to adopt Justice’s virtual standard, there would be nothing to stop California from requiring remote retailers to post cancer warnings on coffee or potato chips advertised on their websites. This would vitiate the Commerce Clause."