Herald-Whig View

Internet sales tax collection ruling a wise one

Posted: Jul. 1, 2018 12:01 am

A DECISION by the U.S. Supreme Court could help level the playing field between bricks-and-mortar and internet-based businesses, while also enabling states and local governments to collect billions of dollars in sales tax revenue.

The 5-4 opinion handed down June 21 will allow states to collect sales tax on purchases their residents make from remote retailers, setting aside restrictions that date to the mail-order catalog era that limited tax collections only to vendors that had stores or some other physical presence in the state.

Ruling on a lawsuit South Dakota brought against Wayfair and two other online sellers, Overstock.com Inc. and Newegg Inc., the court said the previous 1992 law, known as the Quill decision, was flawed and outdated because of advances in technology and commerce.

"The Internet's prevalence and power have changed the dynamics of the national economy," Justice Anthony Kennedy wrote in the majority opinion. "This expansion has also increased the revenue shortfall faced by states seeking to collect their sales and use taxes."

The decision was welcomed by traditional storefront Main Street retailers that have seen sales decline as more consumers migrate to online shopping, and by state and local units of government that have witnessed a corresponding drop in sales tax revenue.

The stakes are high. E-commerce sales totaled $450 billion in 2017, or about 13 percent of all retail activity. While customers previously were responsible for paying the sales tax to the state themselves if they weren't charged it, few did.

The court's decision now means online retailers will no longer have an advantage created by tax-free shopping.

Specifically, budget projections supplied by the city of Quincy earlier this year showed its 1 percent share of the state sales tax is expected to remain stagnant, or be slightly lower, instead of growing at 2 to 3 percent a year, which it did for six consecutive years.

Meanwhile, the city's 1.5 percent home rule sales tax was forecast to drop to $9.375 million in the fiscal year that ended April 30 and to $9.291 million for the current fiscal year after reaching its peak of $9.6 million in fiscal year 2017.

That's a disturbing trend because sales tax collections represent 28 percent of the city's revenue and the home rule sales tax makes up 27 percent. Together, budget projections pointed to a nearly $410,000 decline for this fiscal year.

That's revenue needed to pay bills and provide vital services.

Illinois began collecting the 6.25 percent state sales tax on more online purchases from sellers with a warehouse, office or other presence in the state with the 2015 "Amazon tax." A percentage of that is distributed to local governments based on population.

But the tax hasn't covered out-of-state vendors who don't have a presence selling merchandise online to Illinois residents. And cities like Quincy that have a local sales tax haven't been able to collect taxes on what their residents buy online unless they're home to a warehouse or fulfillment center.

Admittedly, traditional brick-and-mortar retailers still face an uphill battle in competing with the convenience of online shopping. But the Supreme Court's decision is a step in the right direction to create marketplace fairness.

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