As I presume you’re aware the Supreme Court has rendered a decision overruling Quill Corp. v. North Dakota (1992) and National Bellas Hess Inc. v. Illinois Department of Revenue (1967), the two prior decisions that created the complex “sales nexus” rules that govern when a company engaging in interstate sales must collect sales tax. Analysis is here at SCOTUSBlog. States, hungry for revenue from decades of incompetence, mismanagement, and, in some cases, just plain corruption, will, no doubt, laud the decision.
IMO Justice Kennedy, writing the majority opinion in the 5-4 decision, was attempting to remedy his errors from 1992. That decision, along with the law exempting Internet sales from state sales tax, wrought havoc with small brick-and-mortar retailers, giving a substantial competitive advantage to mail order and online retailers. How substantial? When your margin is 2%, 10% sales tax is a big deal.
While that may have been his intention, the effect of this latest decision is to do to small online retailers what the previous one did to brick-and-mortar retailers.
The only actual remedy would have been to break up Amazon, Dell, and the other companies that have grown at the expense of small retailers. But that wasn’t the case before them.
Much is being made of the small effect this decision will have on Amazon, particularly on the part of people who don’t understand how Amazon makes its money. I believe it will have more effect than they might imagine. Amazon doesn’t make most of its money from its own retail sales. It makes considerably more by providing services to “affiliates”, many of which are the very small online retailers likely to be hurt by the decision. It could kill Shopify outright. Shopify is already in the process of becoming a captive of Amazon and Wayfair should accelerate that process. Amazon might well acquire the rest of Shopify.
When the dust has settled I think you’ll see even more consolidation in retail, a process that has been going on for some time.
Another problem I see is that this isn’t a decision the court had to make and it’s an issue that should have been decided by Congress. In other words, this is another example of Congress abdicating its responsibilities resulting in a de facto transfer of authority to the other two branches.
Andy-Unless one of the parties manages to get 60 senators in office I don’t see much change in this process. Makes McConnell’s decision to hold off a vote for a year a key decision. In the unlikely event that the Democrats take back the Senate and one of the old Democratic judges retires or croaks I fully expect the Senate to hold out until the next election, no matter how long that might be.
Steve
Andy –
The majority opinion dealt with that issue, and took the position that it was not the legislative’s job to correct what the judicial branch had screwed up.
Its what Dave was referencing in his paragraph 2.
Guarneri,
The Congress still could have (and should have) decided the issue through legislation. They’ve had over 1/4 century to do it.
I was surprised by the ruling and amused by this excerpt from Dave’s link:
“New Jersey knitters pay sales tax on yarn purchased for art projects, but not on yarn earmarked for sweaters,†Roberts said, while Texas imposes a sales tax on plain deodorant but not on deodorant with antiperspirant, and Illinois treats Twix and Snickers bars differently for sales-tax purposes.
Obviously, one of these bars is food and the other is crap, but which one gets taxed more?
Congress has actually had 51 years, although its only had major impact on retailing in the last 10 years.
One of these days (maybe 15-20 years from now), the Federal government will get to sales tax reform. Its a sad state of affairs when India can pass a constitutional amendment(!) to sales tax reform.
Not to belabor the obvious, but a there’s a benefit to standardizing what is taxable, who is collecting sales tax, where to emit to, who has the authority to raise taxes (having different rules for every municipality can only advantage companies like Amazon who have the resources to comply).
Yes, PD, that’s why calculating sales tax is an industry all on its own. Just one company in the industry, Avalara, has 345 employees and annual revenues of around $100 million just calculating sales tax.