2018 Supreme Court ruling may help (or continue to hurt) state and local finances

Early last year Amazon indicated that they would finally start collecting sales tax in states that assess sales taxes, with the one caveat that they would only collect sales taxes on items that they sold or fulfilled. Only half of the goods sold on Amazon are sold by the e-commerce giant, leaving the rest of the goods (potentially) untaxed.

The Supreme Court has ruled that e-commerce retailers cannot be compelled to pay the sales taxes in states they don’t have a “physical presence.” With a $100 billion in e-commerce for the 2017 holiday season alone, e-commerce has a huge and growing footprint. State and local governments’ have been struggling as more commerce moves online—and the revenue from those sales disappears as brick & mortar close their doors. This year the Supreme Court has the potential to upend the long-running feud between state and local governments and online retail. While the court was certainly within its right to claim that the “requirements…the court decided, were indeed undue burdens that would ultimately harm the national economy” when they ruled on the Quill (mail order office supplier) case in the 1960s. However, technology has clearly reduced the regulatory compliance costs associated sales tax collection burdens—in that computers can easily match rates with each transaction and assure state/local compliance.

Beyond the regulatory burdens, “state and local governments will lose about $34 billion in revenue in 2018 because of the physical presence requirement” that was set forth in the Quill case. The physical presence rule has also hampered local economic development because “it discourages [online retailers] from establishing a brick-and-mortar location (and creating jobs) in a new state and being liable for collecting its sales tax. Online retailers also enjoy state services — like roads that allow their products to be delivered efficiently to customers — without contributing to their upkeep.” It is clearly far past time to recognize that e-commerce is just commerce.