Yesterday’s op-ed in the Boston Globe is severely flawed and glosses over the essential facts of the sales tax collection issue.
Jeff Jacoby’s piece, “There’s no fairness in taxing e-sales”, starts off by stating that the legislation expected to be introduced by Senator Durbin “would subject millions of American consumers to ‘excessive’ fees they have long been sheltered from: sales taxes on their online purchases.” Sales taxes on online purchases are not excessive fees that consumers have been sheltered from—this is a tax that consumers have been legally obligated to pay to the state of Massachusetts since 1967.
The op-ed goes on to state that Durbin’s bill will undo the longstanding rule of “substantial nexus” that “comes from the Supreme Court, which has confirmed the no-nexus-no-tax rules in a a line of cases stretching back more than 40 years.” The op-ed fails to elaborate on those Supreme Court rulings—Bellas Hess (1967) and Quill (1992)—which stated that a remote retailer (then mail-order catalogs) should be obligated to collect sales tax just as a local retailer must but also conceded that unlike a local retailer, a remote retailer would be “entangled in a virtual welter of administrative and record keeping burdens.” The 1967 ruling ultimately placed the issue before Congress: “The underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve. No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions.”
The op-ed points out that Main Street businesses have some competitive advantages: the ability to attract customers with window displays, the ability to play up ties to the community, and the ability to give consumers a way to “try on items before buying them.” That is true, but from the Main Street retailers’ point of view it looks like this: Shoppers come into their stores, browse and ask the clerks questions, and then say “Thanks, I’m going to go order it online.” This seems to be especially true of high-end products where the sales tax can amount to over a hundred dollars, like electronics and cameras.
The op-ed also makes the argument that “taxes paid should bear some relations to services received, and merchants with no ‘substantial nexus’ to a state receive no services from it. They don’t use its firefighters or sewers, don’t send their kids to its schools, and don’t expect it to plow their streets after a blizzard.” But the location of the store is irrelevant. Sales tax is paid by the consumer, not the retailer, and it’s destination-based—it goes to the state and community where the consumer is located. Massachusetts consumers DO use the firefighters, DO use the sewers, and DO expect their local municipality to plow their streets.
We realize that an op-ed piece is the opinion of the writer. However, we feel this particular op-ed overlooks the fundamentals of the debate. This debate is not about whether you should be taxed, why you should be taxed, or at what rate you should be taxed; that debate takes place at every election when you choose your local representatives and weigh in on various ballot initiatives. The question is: What is the most efficient way to collect sales tax?
The Streamlined Sales and Use Tax Agreement, which began in 2000, is the result of the cooperative efforts of 44 states and the business community to simplify common definitions, standardize sales tax data, and standardize reporting procedures. The federal legislation that is being proposed by Senator Durbin would enable states that have already revised their sales tax laws to comply with Streamlined to require remote retailers to collect sales tax. Twenty-four states have already made the necessary revisions to theirs sales tax laws and more are considering doing so (including Massachusetts). It is better that Congress address this issue so that all businesses collect the correct tax. Until then, more and more states are going to be attempting on their own to collect these taxes, which will increase complexity.