Retailer groups hail U.S. Supreme Court decision on internet sales; modest but positive impact on WA state budget expected

Yesterday’s U.S. Supreme Court ruling on internet sales tax collections has met with approval from brick-and-mortar retailers and government officials. The Lens reports

For the Washington Retail Association, the ruling represents a step toward creating a level playing field between online retailers and brick-and-mortar businesses.

“It’s going to revitalize a lot of stores that have been losing considerable market share,” Vice President of Government Affairs Mark Johnson said. “You can buy anything on the internet now. We think this is a matter of fairness and open competition.”

In agreement is the National Retail Federation, which argued in a brief filed with the high court that the “tax advantages of absentee retailing are driving all kinds of businesses away from local communities.”

Bloomberg Tax reports that the ruling does not in itself resolve the national e-commerce tax uncertainty.

“This is obviously huge and validates that physical presence is not a sound standard in the 21st century economy,” Max Behlke, director of budget and tax for the National Conference of State Legislatures, told Bloomberg Tax. “States that implement necessary and sound standards for interstate commerce will finally be able to enforce their tax laws as they intended. Now, it is time to move to the next chapter and states will work to implement a sound tax system that is fair to all retailers.”

Among the burning questions to sort out during that next chapter:

  • whether states will all copy South Dakota’s model, of taxing based on a threshold of sales or revenue in the state, which many practitioners believe is likely;
  • whether states will therefore abandon other regimes, such as reporting/notification regimes, which at least several practitioners told Bloomberg Tax was likely;
  • whether states will apply their existing, or new, regimes retroactively; and
  • perhaps most immediately, whether South Dakota’s law is in fact constitutional, which the high court didn’t technically resolve in the Wayfair ruling.

In 2017, the Washington Legislature addressed remote sales as part of the supplemental budget. In its report on the budget, the Washington Research Council wrote that the budget,

  • Requires remote sellers (sellers without a physical presence in Washington), referrers (people who list or advertise items for sale for a seller and receive a commission) and marketplace facilita- tors (people who contract with a seller to facilitate the sale of items through a marketplace) to either collect and remit sales taxes or comply with notice and reporting requirements to the cus- tomer and the Department of Revenue. This is not settled law at the federal level—see our report,“Washington’s Steady Move to an Eco-nomic Nexus Standard for Taxes

With yesterday’s ruling, the law is now much more settled. And policymakers are trying to calculate the benefit to the state budget. In the Spokesman-Review, Jim Camden reports it’s good news, but not game-changing.

Washington could collect hundreds of millions of dollars a year in extra tax revenue from a new Supreme Court ruling that says online shoppers owe their state sales tax even if they buy from a company in another state.

Just how much is unclear, said state officials who are still studying Thursday’s 5-4 ruling that overturned existing case law on collecting sales tax from online purchases from out-of-state merchants.

“It’s good news. It’ll take a while for some of the money to start showing up,” David Schumacher, the director of the state’s Office of Financial Management, said. “It’s not earth-changing. But it’s not chump change.”

As the Seattle Times reports, the state has already booked a bump in collections. 

Washington, for example, already expects to see an estimated $432 million in new revenue from a recent push to expand online sales-tax collections. State lawmakers were confident enough that the Supreme Court ruling would be favorable to put that number in the current two-year budget.

Walker Ornstein in The News Tribunes writes that lawmakers’ action now appears solid.

In the waning days of Washington’s 2017 legislative session, state lawmakers desperate for new revenue to balance the budget turned to a legally questionable scheme aimed at collecting more sales taxes from online shoppers.

A new U.S. Supreme Court ruling Thursday appears to have wiped away those questions and validated the new de-facto requirement for many online retailers to charge Washingtonians sales taxes as they hadn’t before.

That means Washington residents buying goods online will end up with less money in the bank. It also means the state’s gamble paid off.

“If nothing else, our 2017 budget, which was balanced on the backs of this deal, is locked in and is safe,” said state Sen. Reuven Carlyle, a Seattle Democrat who has advocated for an online sales tax law since 2013. The state projected the 2017 law would bring in roughly $1 billion over a four-year span.

Along with the new revenue forecast that boosted anticipated tax receipts, the ruling continued good news for the state budget. The Lens reports one analyst thinks it may even be enough to allow lawmakers to avoid another tax controversy. 

[Washington Policy Center Government Reform Director Jason] Mercier said that one indirect consequence of ruling is that it might take some wind out of any potential effort next session to enact some form of an income tax. One argument for it “was that we need an income tax because we weren’t getting our sales tax (revenue),” he said.

Maybe.