Last week’s U.S. Supreme Court ruling regarding online sales tax is a victory for brick-and-mortar stores that compete against online retailers. More important, it is a victory for common sense while dragging tax policy into the 21st century.
The justices ruled 5-4 in South Dakota v. Wayfair that online retailers must collect sales tax in states where such a tax applies. In Washington, the state sales tax is 6.5 percent, and municipalities may tack on up to 3.9 percent for their own benefit.
This is not a matter of government gouging citizens; it is the foundation of services that benefit all Washington residents. With the state having no income tax and no capital gains tax, the sales tax provides more than 50 percent of government revenue. According to WalletHub, Washington ranks 33rd among states in terms of tax burden, making it difficult to argue that residents are oppressively taxed.
The Supreme Court ruling modernizes the country’s tax-collection system, ending a distinct advantage that online retailers have held under a 1992 court ruling in Quill Corporation v. North Dakota. That decision barred states from requiring businesses to collect sales tax unless the company has a physical presence in the state.
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The Quill ruling applied to a case involving mail-order businesses and reflected a long-ago economy. As Justice Anthony Kennedy noted in last week’s majority opinion, mail-order purchases accounted for about $180 million in retail sales a quarter-century ago; last year, online retail sales amounted to more than $450 billion. Kennedy opined that the earlier ruling had distorted the marketplace, allowing e-retailers to charge less than brick-and-mortar stores selling the same products.
In writing for the minority, Chief Justice John Roberts ruled that the issue should be decided by Congress rather than the courts. We disagree. If certain retailers are harmed by unconstitutional tax policy, it is up to the Supreme Court to render a decision. Notably, liberal Justice Ruth Bader Ginsburg and conservative Justice Clarence Thomas both sided with the majority, indicating the ideological lines that are crossed by the issue.
For Washington, the decision likely will not have a profound impact, as the Legislature in 2017 passed an expansion of online tax collections. The law requires businesses with annual sales of more than $10,000 in the state to collect sales tax or inform consumers that they are liable for the tax. That is expected to add more than $750 million to state coffers for the 2019-21 biennium. Meanwhile, most large online retailers — including Amazon — already collect sales tax.
Regardless of the impact, holding all retailers accountable for sales tax and treating them as equals is a victory for fairness in the marketplace. State Sen. Reuven Carlyle, D-Seattle, said, “It’s a real vindication and a validation for those of us who have said from the beginning that equity between online and brick-and-mortar is important.”
Ensuring such equity might require additional action by the Legislature. In his dissent, Chief Justice Roberts noted that the new tax rules might be burdensome for small retailers, and lawmakers must work to provide direction for those retailers.
Some have hailed the Supreme Court decision as a victory for states looking to increase revenue collections. That is not necessarily something to celebrate, considering that revenue increases come from the pockets of citizens. But in providing clarity and in leveling the playing field for all retailers, the justices have delivered a common-sense decision.