Traditional retailers, or those of the brick-and-mortar variety, long have argued that they face a competitive disadvantage. They must collect sales taxes, while Internet retailers do not face the same requirement. On Monday, the U.S. Supreme Court sided with traditional retailers, if indirectly so, in letting stand a New York law that broadens the scope of sales tax collection to include many online companies.
In 1992, the Supreme Court held that a state could not apply the sales tax to companies that lacked a physical presence within its boundaries. Five years ago, New York expanded the definition of physical presence to include “affiliates” of Amazon, Overstock and other Internet retailers. These partners often link to an online retailer and profit when a consumer makes a purchase through their websites. This is the law that the Supreme Court let stand.
Now states have an avenue for expanding the reach of their sales taxes. Already, Amazon collects sales taxes in 16 states, including California and New Jersey. It has done so as part of crafting separate agreements, say, locating a warehouse in exchange for collecting sales taxes.
In its ruling in March, the New York Court of Appeals stressed how dramatically things have changed the past two decades. Look at Cyber Monday this week, online sales increasing 20 percent above last year, one analysis noting that almost 30 percent of online shopping was conducted on mobile devices. Many Internet retailers no longer fit the description of a fledging operation in need of relief from the tax burden.
Gov. John Kasich rightly has made the case for expanding the reach of the sales tax to reflect the changing economy, services outpacing goods, consumers more often going online as opposed to heading to the store. Such adjustments represent good tax policy, part of delivering a broader base to achieve a lower rate.
Estimates are that states give up as much as $13 billion a year in uncollected revenue. At the Statehouse, lawmakers should be looking for ways to gather Ohio’s share, the revenue deployed, for instance, to bolster school finances or to maintain and improve public works.
Ideally, Congress would act at the federal level to bridge the competitive divide between traditional and Internet retailers. That would do more than bring an element of fairness to brick-and-mortar shops. It would serve well those who do not shop online, many with low incomes and without Internet access or credit cards. In April, the U.S. Senate did approve such a course. Unfortunately, the House has yet to act.