The New York Times acknowledged Black Friday (when did the Thanksgiving Day Plus One shopping extravaganza acquire that name? Is it so named because it’s the day that puts retailers into the black for the year? I would call it “Shopping Orgy Day”) with an editorial calling for online retail sales to be taxed. (Yes, You Owe That Tax) Saying “[o]nline retailers who do not collect sales tax enjoy a significant and unfair advantage over rivals who must add the tax to their prices. They also cost the states billions of dollars a year in lost sales tax revenue . . . ” the Times lauds the 2008 New York state “Amazon Law” making online retailers responsible for collecting taxes on sales to New York residents. Every semester for many years I have told students that e-commerce sales taxes were a question of when, not if. One of these years I’ll be right.
Here’s an interesting story by Eric Torbenson from the New York Post: “The monster that ate the recovery–Why the rise of Internet shopping could destroy jobs and the economy.” [It’s alternate subheadline is “could filling your iPod destroy the economic recovery?”] The premise is “online sales mean fewer employees and fewer physical storefronts. That means falling salaries and rents, decreased construction, lower payroll taxes[, and lower] sales taxes.” Internet sales are projected to grow faster than brick-and-mortar sales, taking a toll on retail employment, those sectors of the economy that feed on retail employment, and governments that rely on sales tax revenue. The evolution towards online sales may be inevitable, but the recession’s quickening of its pace amplifies the resultant economic dislocation.
It has been a question of when, not if, Congress would allow the states to tax Internet sales that until now have been beyond their reach. The weak economy is converging the forces represented by the National Conference of State Legislatures, who’ve been pushing Congress for such taxing authority for years, and the Streamlined Sales Tax Agreement, a multi-state agreement to simplify the confusing array of state and local sales tax rates and definitions. In Tax-free Internet shopping may be at an end Declan McCullagh reports about a bill that could be filed in Congress as soon as Monday to “rewrite the ground rules for mail order and Internet sales by eliminating what its supports view as a ‘loophole” that, in many cases, allows Americans to shop over the Internet without paying sales taxes. McCullagh provides a brief and informative overview of the current law; Internet law students can work their understanding of the Supreme Court’s decision in Quill v North Dakota into discussions about the proposed law with friends, family members, and prospective employers.
Declining tax revenues have state governments searching for new funding sources. Retail Internet sales are an obvious target. Hawaii is considering legislation to make its tax code consistent with the Streamlined Sales Tax Project, in exchange for which some participating retailers would collect and remit Hawaii’s 4 percent tax on sales in the state, even if the retailer does not have the minimum contacts and substantial nexux with the state required by Quill v North Dakota for a state to impose sales tax liability on out-of-state retailers. The state estimates it could raise $166 million a year from such taxes. The linked article notes that 1,100 retailers have agreed to cooperate with the Streamlined Sales Tax Project, which 22 states have adopted. Idaho, meanwhile, is headed in the opposite direction. Its House Revenue and Taxation Committee just voted against joining the SSTP. Congress holds the ultimate card in this game; I won’t be surprised if Congress repeals the Internet Tax Moratorium and allows states to impose new taxes on Internet sales transactions.
How long till email chains warning of the U.S. Postal Service’s “email tax” crawl out of the Urban Myth dungeon and get back in circulation? (See Snopes article)
I’ve noted recently (here and here) that New York changed its law to require out-of-state Internet retailers that receive customer referrals from in-state business to collect and remit NY sales taxes on transactions with New York residents. The law went into effect on Sunday June 1 and the NY Times reports that Amazon, among other online sellers, began collecting the tax on that day while it continues to press its legal challenge to the new law. Overstock.com, which severed its relationships with 3,400 NY affiliates in response to the law, on Monday filed its own challenge to the law in New York state court, seeking to enjoin the law pending resolution of the legal issues.
Every semester I discuss an Internet-sales hypothetical with my Internet law class, in which a consumer in State A purchases goods from a seller in State B, is unhappy with the purchase, and wants to pursue legal claims against the seller. The first question we discuss is “where did the transaction take place?” Some say the transaction takes place in the consumer’s state, some say it takes place in the seller’s state, some say it takes place wherever the retailer’s servers are located, and some say you can’t tell. The law has not provided a definitive answer to this question, nor does it need to. The law has been able to resolve whether State A could exercise long-arm jurisdiction over the seller or whether the seller must collect and remit to State B sales tax on the non-resident consumer’s purchase. Under current U.S. law an online retailer does not, by having an online sales presence alone, automatically subject itself to jurisdiction in every state in which its products are sold.
A proposed law would complicate this question in the European Union. As reported here by TimesOnline, the law would, in any business-to-consumer contract, make the contract subject to the law of the country in which the consumer resides. Critics argue that the law would limit the growth of EU e-commerce and limit consumer choice. Opposing the law, the British Retail Consortium stated that “[t]he sheer cost and uncertainty inherent in such a scenario is so high, that it is simply not credible to assume that companies, and small ones in particular, could engage in such trade.” Consumer advocates contend, on the other hand, that consumers might be wary about purchasing from other countries if they are not protected by their own laws.
I’m curious to see what happens.