Taxes are like kudzu vines — they grow rapidly and without restraint. On Tuesday, the U.S. Supreme Court will hear arguments in a case that could fertilize the expansion of state and local sales levies.
At issue is the growth of e-commerce.
In 1992, the justices ruled in Quill Corp. v. North Dakota that the Constitution’s commerce clause prevents states from levying sales taxes on retailers that don’t have a physical presence within their boundaries. The opinion concluded it was up to Congress to set up a system that regulated cross-border transactions.
But despite numerous proposals over the years, Congress has yet to produce such a framework. And when you combine the proliferation of online shopping with the insatiable spending habits of those in the public sector, you have the perfect conditions for a massive government money grab.
Enter South Dakota. Seeking to prompt a court challenge in an effort to force the justices to revisit their 1992 ruling, the state passed a law imposing a sales tax on retailers with an “economic presence” in its jurisdiction. The measure applies to any merchant that sells at least $100,000 in goods to South Dakota residents or conducts more than 200 transactions with those living in the Mount Rushmore State.
A group of online retailers sued, and the case eventually made its way to the high court.
Make no mistake, if the justices rule for South Dakota, it will set off a tax frenzy among state and local governments and further erode what little spending discipline remains in the public sector. “It could be read as a green light to ‘Go for it, states,’ and they will go for it,” a University of Connecticut law professor told The Wall Street Journal.
Brick-and-mortar interests argue that online sellers have an unfair advantage because, in many cases, they don’t have to impose a sales tax on their products. But sales taxes are theoretically designed to compensate governments for services and infrastructure necessary to support community development — schools, roads, parks, sewers and the like. Online merchants operating hundreds or thousands of miles away from a purchaser impose none of those costs.
The Journal reports that there are 12,000 different sales taxes levied across the country. While software may be available to help online retailers sort through the details, that would create another layer of red tape that could bankrupt many smaller operations. In addition, the Journal notes, critics worry that expanding state power in this regard could result in states reaching “outside their borders to audit sellers with no representation.”
The court should stick with its original 1992 ruling in Quill. This is a money grab, pure and simple.
“Members of Congress have been working for several years,” a Journal editorial noted Monday, “on legislation that would let states enter a compact to collect a simplified sales tax from remote retailers.” This would be a far preferable solution than empowering states to treat far-away retailers as a lucrative new revenue source.