Up until now, a 1992 Supreme Court decision, Quill v. North Dakota, mandated that a seller must have a physical presence—like a store or warehouse—in the buyer’s state to be subject to that state’s sales tax. Far from a tax loophole, this is the principle of “no taxation without representation” in action. The seller, not the buyer, calculates and pays the sales tax.
Some states think this ruling will help their state budget shortfalls, but it is such a small drop in the bucket—one study pegged it at less than 1 percent of total state and local spending. Moreover, at what cost?
This ruling exposes small online entrepreneurs to huge compliance costs, red tape, and state tax audits that are going to make things harder for them. Some may even go out of business.
Since the court overturned the physical presence rule, it is essential that Congress clarify and reinforce the principles of physical presence and state tax competition to protect online commerce, smaller online businesses, and consumers.
The Internet has presented explosive opportunities for new business owners and Americans have benefitted from their success. Today you can buy almost anything online.
Congress should get to work protecting this progress for the sake of all consumers and online entrepreneurs. They should pass legislation that stops states from taxing the Internet to death.
Read CEI’s amicus brief in South Dakota v. Wayfair here.