Since 1992, parties have been at odds over the ability to collect sales taxes and to subvert this tried and true system of paying a small percentage of a purchase designed to be used for things such as schools, roads and first responders.
This is set to finally be decided in the high court this month, with South Dakota challenging this outdated system and Internet giant Wayfair.com. ASA has been a part of this fight, helping draft a legal brief urging the justices to take this case up, a tall order in that they typically get cases numbering in the thousands and only hear a few.
Going back to the days of catalogs, pre-dating the World Wide Web, defendant companies have long claimed that if they are not located in a particular state, having physical nexus, then they should not be required to abide by the sales tax laws where the purchaser is living. This has led to Internet-based sellers gaming the system to the disadvantage of brick-and-mortar sellers like those in ASA. What makes matters worse for our industry is the growing prevalence of homeowners and customers using our members’ magnificent showrooms and their knowledgeable staffs, only to make their purchases on a discounted website, one that is often waiving the sales tax as incentive to buy online.
ASA and others in the brick-in-mortar retail community have fought hard for a federal solution and have often hit a brick wall of opposition. Opponents on Capitol Hill have long opposed granting states the right or even the option to collect sales tax on out-of-state buyers. For some, their state does not have a sales tax. Those states, referred to as the NOMAD states, are New Hampshire, Oregon, Montana, Alaska and Delaware. Each of these states has a pair of powerful senators whose mission has been to prevent any sort of sales tax placed on buyers in their state. Others simply felt that this was a new tax, though we’ve long argued otherwise that it is a tax owed and a responsibility of the purchaser to pay it each year — states just haven’t had the authority to require it.
As we began, states have long relied on putting their sales taxes to good use, maintaining roads, keeping them plowed in the winter and keeping the streets free of crime. To be sure, states also use their tax code to incentivize others, like having no state income tax or lower corporate taxes. In the end, it often balances out. For example, Florida famously has no state income tax, but its tourists are taxed heavily, the same for Nevada. In Texas and Alaska, two more states without an income tax, they rely on severance taxes, by taxing the extraction of the oil and gas that runs deep in their states.
States will continue to get creative with how they address sales taxes, in light of the growth of e-commerce. According to the Tax Foundation, Washington state derives the highest proportion of state and local tax revenues at 45.4%. It is followed by Tennessee at 40.9% and South Dakota at 40.4%. When a resident of Montana makes an Internet purchase from a seller in Washington, there is little that the state of Washington is able to do to collect sales tax on this purchase, unlike if that Montana resident were to travel and personally make that same purchase in Washington.
Call to action
What we’re seeking is for states to have that option. And regardless of the outcome at the Supreme Court, Congress must still act to write the rules of the road. ASA and others will continue to
call on them to act.