We all know brick-and-mortar stores are failing left and right, victims largely of the national shift to e-commerce. One big disadvantage of the physical stores, besides having to pay for infrastructure and the staff to run it, is that they have to collect sales tax and their online competitors generally do not.
And that means another big loser in the evolving digital world is state government, which is losing lots of tax revenue. States have been having to contend with the 1992 Supreme Court case Quill Corp. v. North Dakota, which prohibits states from collecting sales tax from businesses unless they have a physical presence in the state. That case was before the advent of the behemoth Amazon and the explosion of e-commerce as the dominant retail phenomenon in the country.
In Indiana, the state is able to collect some of the elusive sales tax through agreements reached with nearly 2,000 companies, including Amazon, which add state sales tax to purchases. But many others refuse to go along, so the state passed a law, which went into effect over the weekend, declaring its right to collect sales taxes from those using only online transactions.
The stakes are high for Indiana. Sales taxes provide the state with one of its largest source of revenue. In 2016, more than 40 percent of the state’s $18 billion revenue came from sales taxes. A study by the Indiana Fiscal Policy Institute and Ball State University estimates the state lost around $77 million in 2012 because it could not collect all online sales taxes.
But e-retailers have a lot on the line, too. They say having to adhere to the tax codes in every state and city would be “bureaucratic gymnastics” that would force many smaller companies out of business.
Seems like a job for Congress, which, unfortunately, has shown little interest. The constitution’s Commerce Clause gives it great authority to regulate commerce between the states. That clause has been used to give Congress every power under the sun, including thousands of things it should never have been involved in. Is it too much to ask that the clause be invoked to actually do a little regulation of actual commerce?
