PD Editorial: Time for online retailers to collect sales taxes

The U.S. Supreme Court has an opportunity to overturn an unwise decision from the last century that has cost states and communities tens of billions of dollars in lost sales tax from online retailers and given those retailers an unfair advantage over local, bricks-and-mortar merchants.

In 1992 - two years before Amazon was founded - the court ruled that states could only require mail-order sellers to collect sales tax if those sellers had a physical presence in the state.

Now, with the enormous growth of online retailing and the development of software that can track and calculate state and local sales tax, the decision is clearly obsolete. At least three Supreme Court justices, including Justice Anthony Kennedy, had expressed a desire to revisit it. In a recent concurring opinion, Kennedy wrote, “In view of the dramatic technological and social changes that have taken place in our increasingly interconnected economy, it is unwise to delay any longer a reconsideration of the court's holding.”

South Dakota gave Kennedy and the court that chance after it passed a law requiring online retailers over a certain size to collect a 4.5 percent tax on purchases - and then sued three large online retailers for their failure to comply.

Lawyers for 35 states - including California - filed a friend-of-the-court brief urging justices to overturn the 1992 ruling.

California officials estimate the state loses about $2 billion in revenue despite passing a law a few years ago to require large online retailers to collect the taxes. Amazon and others fought that law for years, but ultimately saw the wisdom in complying and now are opening warehouses and stores here.

For decades, this ruling gave an unfair advantage to online retailers over their local counterparts. Shoppers could save a lot of money, especially on large purchases, by avoiding state and local sales taxes online. But they also lost, as their communities had fewer dollars to pay for police and fire protection and other public services.

Last year, the Government Accountability Office estimated they were losing between $8.5 billion and $13.4 billion a year from online retailers not collecting sales taxes. And the states' lawyers cite a study by the Marketplace Fairness Coalition that predicts states could lose $211 billion over the next five years if online retailers continue to be able to refuse to collect sales taxes.

Technically, shoppers are supposed to record such purchases and pay the sales tax when they file state income taxes, but compliance rates are minuscule and enforcement nonexistent.

Many large online retailers have begun collecting taxes voluntarily, even in states where they lack a warehouse or other physical presence. Amazon - despite ongoing criticism from President Donald Trump - began collecting sales taxes from customers in all 45 states that levy them last year. The Trump Organization's online store, on the other hand, only collects sales taxes in three states.

Justices heard the case Tuesday. How they might rule remained unclear, though. Justice Sonia Sotomayor, for example, said the case raised questions better suited for Congress to deal with than the Supreme Court.

She is right about that, but Congress has had decades to act, and it failed. There is no reason for confidence that Congress would finally do the right thing if the court declines.

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