By overruling the Quill remote sales tax precedent on June 21, the U.S. Supreme Court undid 50 years of legal standards that businesses and consumers had relied on in all manner of decision. Now what?
The Court’s ruling in South Dakota v. Wayfair Inc. is final. Case closed, right? Wrong - far from it. SCOTUS remanded the matter back to South Dakota’s Supreme Court, which may now modify the order or entertain additional litigation on the issues. It won’t be until later this summer that we know the final result from South Dakota for sure.
More importantly, there are other issues untouched by the SCOTUS decision, such as whether a cookie placed on a computer of a Massachusetts resident means the merchant who places it must then collect and remit for all their sales into the state. There are also other pending lawsuits in states covering a wide variety of directly and indirectly related issues.
In the decision made on the slimmest of majorities, the high court seemed to suggest that specific features in South Dakota law compelled it to decide as it did; were those features not present in another state’s law, remote collection laws might still be illegal. But this is completely untested. At present, it is unclear what, if any, restraint states will show in both the implementation and enforcement of remote sales taxes or even what is allowed under the recent ruling.
Our organization, which represents direct catalog and e-commerce merchants, has ongoing lawsuits across the country on some of these very matters. We may have to bring more lawsuits forward too. We are fighting for our life. How things now unfold will determine significantly whether non-traditional retailers even have a future in America.
Meanwhile, states are cranking up their legislative activities to get in on this gold rush as soon as possible. This is a sea change for affected businesses. The complexity and difficulty has sellers reeling. Collecting in Colorado, for instance, means digesting the 70-odd different tax jurisdictions and writing over 70 checks to different addresses in just Colorado alone. Simple and easy? Not a chance.
There are a bevy of unanswered questions:
- When will this all go into effect?
- Will states seek to collect taxes retroactively? Will they demand taxes on transactions concluded long ago and not collected at the time?
- Is there any limit to acceptable complexity? That is, will states and municipalities be free to use wildly different rates, definitions of what is taxable, and even seemingly minor details such as how to round off a transaction?
- Are there any small business minimums before compliance is required?
- Will businesses be given grace periods once all the final details are known so they can then implement or are they expected to simply wing it now?
These and more questions abound. How about companies in sales tax-free states? They do not even have systems in place now for sales tax. Are they now forced to collect sales taxes across the land?
Implementation lead-time is a major issue itself. How much notice will companies get once the rules are clarified? Consider what just happened in Vermont where the state adjusted an existing regulation with the SCOTUS decision in mind and served up exactly two business days’ notice to businesses nationwide that they must now collect for all sales made in to Vermont. This will wreak enormous unnecessary havoc.
Ultimately, it is up to Congress to step in and stop the chaos by clarifying the rules going forward. SCOTUS was clear in this ruling and previous ones that Congress is a much better venue to address these issues.
For rather obvious reasons, politicians have shown they prefer to tax or regulate those who cannot vote for them. Case in point: Airport, taxi, hotel or meal taxes are often set at higher levels than other sales taxes in many locations. Now that it is open season, can we expect this principle to guide lawmakers everywhere? Is it acceptable to foist new responsibilities and regulations on those who lack the political standing for any redress?
Speaking of principles, this decision violates some of the very principles on which our country was founded. Taxation without representation caused a revolution. Local jurisdictions imposing fees and duties on goods passing through their territory is as old as the Silk Road. What can we expect now?
How about business-to-business transactions? Today many B2B transactions are tax exempt. When companies consume an item they purchase, and do not use it in the making of another product, they must pay a use tax. Business use tax compliance is well over 90 percent today. Most businesses are audited annually for compliance. Do these companies now have to handle collecting and remitting on all their transactions, a clear additional cost but without any clear benefit in new revenues?
Speaking of audits, can any government entity now audit any business? This is not just 46 sales tax collecting states. There are over 560 sovereign Indian nations and thousands of individual jurisdictions. Add these to the mix and we’re talking about more than 12,000 different taxing jurisdictions. Can commission-based “bounty hunters” now enter any business at will seeking access to books and records?
Until Congress clarifies the new rules of the land, the threat of outright chaos is very real. The time and money required for e-commerce and catalog merchants to resolve these and other issues through litigation is massive. Consumer confusion will be considerable. In fact, consumers may lose out the most as companies find they cannot hurdle the complexity required and simply stop selling in some locations or go out of business altogether. Rural Americans, shut ins and senior citizens will be especially hard hit.
The view is not worth the climb. A recent GAO study showed that imposing sales tax on remote transactions will add only 2 percent -3 percent in new revenues. It will not take much of an employment decline to wipe out any gain given the many taxes working Americans pay regularly, plus the various corporate tax payments currently being made. This development may be a real net loss for all involved.
The urgency is high and so is the uncertainty. The rules are now unclear. What must be done next is for our national legislature to define exactly how this will all be handled. Congress must act quickly before any real and lasting damage is done to one of the brightest sectors of the economy and a wonderful source of everything from food to fashions.
Hamilton Davison is president and executive director of the American Catalog Mailers Association, a Washington-based advocacy organization for catalog merchants.