With high budget deficits, states like California are trying to squeeze revenues out of online retailers by attempting to collect some sales taxes on goods purchased online. California’s curent rate is 8.25 percent, which can total 9.75 percent based on jurisdictional additions (Texas’ statewide is 6.25 percent with a maximum of 8.25 percent).
Online retailers cherish this built-in discount. It is one of many advantages causing their profits and stock values to soar. Amazon.com’s lawyers are predictably pushing for a referendum to decide the fate of California’s push for the taxes. Lawyers on both sides are debating this referendum’s consistency with California’s constitution.
North Dakota decided a similar issue that still stands in Quill Corp v. North Dakota. In this case, the Supreme Court used the Commerce Clause and a 1967 ruling, Bellas Hess, to conclude that North Dakota’s use tax interfered with interstate commerce. North Dakota had imposed an unconstitutional burden and had no right to declare the 1967 ruling “obsolete,” no matter how times had changed.
The Court in Quill struck down North Dakota’s levy of a sales tax on goods imported from Quill, an office supplies retailer incorporated in Delaware. That regulation would have been the responsibility of Congress, not North Dakota courts.
Quill v. ND was decided in 1992. Who knows how the case might have been ruled in the last few months, almost twenty years later, with six justices swapped of the nine — along with such an evolved, booming online retail market, and states hurting for cash.
Levying taxes on goods delivered between states could be considered unconstitutional if defined as “duties” laid on each other without the consent of Congress. As for Congressional consent, the amount of money in dispute might not seem significant enough to act upon, and discussing taxes is politically risky. Though, with politicians aiming for small compromises, this could be one of them.
Another thing to consider is whether or not allowing states to collect taxes on goods imported from each other constitutes “duties” or violates other tax limitations in the Constitution. The framers of the Constitution regarded interstate import/export duty collection as dangerous – it could risk unhealthy competition, hurt cooperation, and damage the union.
But charging a fair sales tax – one equal to whatever a resident would pay if he drove to a Borders or a Target – would not create an unfair disadvantage, especially considering the money online retailers already save by not running physical stores. Another option is charging a low, flat tax. Plus, this battle concerns competition between online and standing retailers, not state industries and governments.
The convenience, rewards and enabled research of online shopping still has so much appeal. Personally, my Amazon.com purchases would not drop if I had to suddenly pay a bit more; after doing the math I would still save.
I have a Prime account, and they already have my cards on file – one click to gratification, and the selection of the online market is unbeatable. Devising a constitutional legislation modifying sales taxes on goods purchased out of state and online would be tough. And, paying more sales taxes would be annoying. However, considering all that our states do for us, we could get over it. Democrats that yearn for tax increases should consider it an option.
Rachel Farhi is an English literature and political science senior and may be reached at [email protected].
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