by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
Wayfair, the home furnishings online retailer that is almost as ubiquitous as Ikea and original maker of the second-hand computer stand being used for this blogpost, is at the Supreme Court tomorrow. South Dakota is trying to tax Wayfair’s sales in that state. It’s oddly symmetrical for this case that could overturn the longstanding precedent from Quill Corp. v. North Dakota that a company needs to have a physical presence in a place in order to be responsible for collecting sales taxes.
The issue has been relatively quiet in North Carolina since Amazon opened facilities in the state and began collecting sales taxes in 2014. That doesn’t mean North Carolina does not have a stake in the debate. Even though online retailers are beginning to open more physical stores and bricks-and-mortar retailers provide opportunities for in-store pickup of online orders, there is still a lot at stake in the principles and practice of taxation that the Supreme Court could redefine with its decision.The Competitive Enterprise Institute and others have filed amicus briefs on behalf of Wayfair.
Jessica Melugin of CEI has done a great job explaining for the rest of us what’s at stake in the case for consumers and new entrants.
The problem with Internet sales taxes is that they’re anti-competitive and would likely be experienced as a tax hike on consumers. They also give states the opportunity to create a makeshift tax cartel, something that’s prohibited by the Constitution.
There would be no way for an online buyer to avoid the tax, which means the long-term effect of this arrangement would be that states would lessen downward pressure on taxes between jurisdictions. Consumers would be forced to wear their home jurisdiction like a tax albatross when they shop online.
An Internet sales tax would also drown small, online businesses and entrepreneurs, like those on eBay and Etsy, with compliance costs since they’d have to deal with the costs and complications of figuring out approximately 10,000 distinct sales tax jurisdictions. These independent sellers would also be subject to audits from up to 46 states, the current number of states that impose a sales tax.