When the U.S. Supreme Court issued its landmark ruling last week in the case of South Dakota v. Wayfair, it opened the door to states requiring internet sellers to collect and remit state sales taxes just like local retailers do.
Idaho has been debating the issue for years, and this year passed long-sought legislation from Rep. Lance Clow, R-Twin Falls, to require that to happen in cases in which the seller has an affiliate retailer in Idaho who does $10,000 a year or more in sales.
“We may want to come back and tweak it,” Clow said.
Clow’s bill was based on an earlier New York case involving affiliate sellers, but the South Dakota decision goes further. South Dakota sought to require sellers to collect and remit their state sales tax if they made at least $100,000 in sales in the state in a year, or had more than 200 transactions – no local affiliate required.
There was no hard data on how many online sales to Idahoans Clow’s bill would have captured; he estimated that Idaho could collect between $22 million and $37 million more in sales taxes next year as a result. The new standard set by the U.S. Supreme Court decision, if Idaho were to pass legislation to match it, could mean the state would collect even more.
Idaho retailers long have complained that they’re being undercut by online sellers who don’t collect and remit Idaho’s 6 percent sales tax like local retailers do. The tax technically still was due – Idahoans are supposed to report and pay it on their state income tax returns, but many don’t.
Idaho lawmakers long resisted moves to require out-of-state sellers to collect sales taxes on grounds that it would somehow be a tax increase – but Clow finally convinced them it’s just a move to collect taxes that already were due.
Clow’s bill this year was co-sponsored by House Majority Leader Mike Moyle, R-Star, an outspoken opponent of tax increases who long had resisted the move.
When Gov. Butch Otter signed Clow’s bill into law, he recalled being asked back in 2008 if he’d support collecting Idaho sales taxes on internet purchases. “I said, ‘If you can figure out a way to do it,’” he recalled.
That’s been difficult. Clow said his first proposal was 80 pages long; this year’s version ended up at just two pages.
It’s not yet clear how long the next bill will have to be, to match up with the latest U.S. Supreme Court decision. The 5-4 decision, authored by Justice Anthony Kennedy, overturned the 1992 Quill v. North Dakota ruling that had held that sellers don’t have to collect and remit state taxes unless they have a physical presence in the state. That holding grew sadly out of date as the internet revolutionized retailing in the United States.
Kennedy wrote in the court’s decision, “The physical presence rule of Quill is unsound and incorrect.”
Calling that earlier ruling “flawed,” Kennedy wrote, “Quill creates rather than resolves market distortions. In effect, it is a judicially created tax shelter for businesses that limit their physical presence in a state, but sell their goods and services to the state’s consumers, something that has become easier and more prevalent as technology has advanced.”
The nation’s biggest online retailer, Amazon, reached an agreement with Idaho to collect and remit its state sales taxes in April of 2017.
Among the minority still holding out against the bill in the Idaho Legislature this year was Rep. Vito Barbieri, R-Dalton Gardens, who railed against the move during the House debate on the measure. “It’s been reported that times have changed,” he told the House. “Well they certainly have changed – states need more funding.” Barbieri said he owns a retail store that has no online presence, and he just has to compete.
On Thursday, the Idaho State Tax Commission issued a statement in response to the U.S. Supreme Court ruling, saying it’s still studying how the decision affects out-of-state retailers. The Tax Commission also reminded Idaho taxpayers that if they don’t pay sales tax on their online purchases, they’re required to report and pay that tax as a 6 percent “use tax” on their state income tax returns.
Clow’s bill that passed this year takes effect July 1.
In the 5-4 ruling, which didn’t follow the usual conservative-liberal split among U.S. Supreme Court justices, Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch concurred. The four who dissented were Justices John Roberts, Stephen Breyer, Sonia Sotomayor and Elena Kagan.
Idaho joined 34 other states in a friend-of-the-court brief urging the Supreme Court to overturn the Quill decision. The states, in their brief, wrote, “As the volume of internet-based retail transactions continues to compound daily, the physical-presence rule exacts an ever-increasing toll on the states’ fiscal health. One estimate puts the states’ lost tax revenue due to the physical-presence rule at $211 billion over the next five years. The states’ education systems, healthcare services, and infrastructure are weakened as a result.”