If you didn’t pay sales taxes the last time you bought something online, you can thank a 1992 Supreme Court decision known as Quill Corp. vs. North Dakota. It all started when the state of North Dakota tried to make Quill Corp., which sold office supplies, collect sales taxes on floppy disks it sold by mail order. The Supreme Court ruled that North Dakota could not make Quill collect sales taxes on remote sales, in effect because it didn’t have a physical location in the state. The decision came with a complex legal argument in which the court eventually suggested the law could be overturned by Congress.
The decision set an important precedent, which has been applied broadly in our online-ordering world. But several attorneys general, including Mississippi’s Jim Hood, have said it’s time for online retailers without a physical location in the state to start collecting taxes from Mississippi residents who buy items from them. In a “friend-of-the-court” brief, Hood and 10 of his counterparts have asked the court to overturn the decision and hear arguments in a newer case.
“More and more, the marketplace is moving from Main Street to the Information Superhighway, and our local merchants are at an unfortunate disadvantage,” Hood said in a news release. “If local stores are unable to compete with out-of-state online retailers, we lose jobs, an important tax base and a critical investment in our communities. We’re asking the Supreme Court to even the playing field for merchants and to allow the states to gain the revenue that should be due to them.”
Hood and other state attorneys general encouraged the court to hear arguments in a Colorado case called Direct Marketing Association vs. Brohl and reconsider the question of whether states can collect sales tax on internet purchases.
In a news release, Hood cited U.S. Census Bureau figures reporting that U.S. retailers made about $300 billion in 2014, with e-commerce accounting for nearly 7 percent of all retail sales that year. Online sales were up more than 15 percent from the previous year, a trend expected to continue since most Americans own smartphones that often come preloaded with online shopping apps.
Any move to collect sales tax from online purchases have been met with reluctance and outright opposition from retailers. Among other objections, they cite the nation’s labyrinthine sales tax system, in which sales tax rates can vary significantly by the address of the purchaser, and complicated by individual sales tax rates in thousands of communities. In their brief, however, Hood and other attorneys general argue this problem is easily resolved with software that can calculate sales tax rates.
Hood noted, in his release, that collecting sales tax on purchases would benefit the state by infusing cash into a state government that has seen layoffs and cutbacks in services. Other states have addressed the issue with their own efforts to work with e-commerce giant Amazon and others.
“At least 13 states now have laws to levy sales taxes on purchases through third-party affiliates like Amazon, for example,” Hood said. “Courts in New York have upheld this type of tax, and I will be asking the Legislature to stand up for our local businesses and adopt a similar tax next year. I also remain hopeful that the brief we filed today will move the Supreme Court toward opening the door for states to collect sales tax on all internet sales.”