Stateline: States, including Washington, consider taxing online sales, but face obstacles

With Washington’s first special session ending tomorrow without a budget agreement, a lot of ideas remain – at least theoretically – in play. One of them, a proposal to tax online sales, is reportedly being considered by a majority of states. Stateline writes, 

Bills to tax remote sales were filed in at least 30 states this year, according to the National Conference of State Legislatures. “It’s been hotly discussed,” said Max Behlke, director of state budget and tax policy at NCSL. With many states facing budget deficits, “they are looking either to continue to cut programs, raise revenue somewhere else, which is always unpopular, or shore up revenue they should be collecting” like remote sales taxes, he said.

In 2017, six states have enacted laws or set tax rules that address the lack of tax on remote sales — Alabama, Indiana, North Dakota, Virginia, Tennessee and Wyoming. All but Virginia have Republican governors and majority GOP legislatures, which are not generally in favor of tax increases. But Main Street concerns about the tough competition from out-of-state sellers seem to have held sway.

A proposal to tax online sales forms part of the House Democrats budget plan here. The House revenue package, HB 2186, has not been passed by the House, and clearly has an uncertain future. But, as the Olympian reported in early May, House budget leaders like the idea of an online sales tax.

An online sales tax plan from House Democrats would bring in an estimated $340.8 million for public schools, higher education financial aid and other education-related expenditures over the next two years.

The tax also could help brick-and-mortar businesses compete with online sellers, said Rep. Kris Lytton, D-Anacortes, a key House budget negotiator.

The story briefly describes how it would work.

The new proposal would require online retailers from any state to either collect state sales tax or provide buyers with information on how to pay the tax to Washington.

It would apply only to companies grossing more than $10,000 in sales in Washington.


Online retailers that opt to give buyers information on paying the tax would have to file an annual report with the state Department of Revenue to ensure the right amount of sales tax is collected.

The report would include buyers’ names, what they bought, how much they spent, and the billing, mailing and shipping addresses they provided to the retailer.

Sellers also would have to preserve the information for five years, in case the the state needs to verify a report.

Stateline identifies two obstacles states face in attempting to make the tax work: the courts and Congress.

The nation’s highest court set the stage for the decadeslong saga over states collecting sales taxes from remote sellers in 1992, when it ruled that Quill Corp., a Delaware floppy disk seller, did not have to pay state sales tax in North Dakota because it did not have a physical location, or “nexus,” in North Dakota.

State legislators and others who want to change the nexus laws argue that the ruling in Quill Corp. v. North Dakota has far outlasted the era of the floppy disk and is ripe for change. In 2015, Supreme Court Associate Justice Anthony Kennedy appeared to agree when he said the Quill decision should be revisited. “Quill now harms states to a degree far greater than could have been anticipated earlier,” he wrote in a concurring opinionto a ruling that allowed a sales tax case from Colorado to go forward.


There is action at the federal level, too. The Quill decision was based on the Commerce Clause of the U.S. Constitution, which gives the federal government the power to regulate interstate commerce.

In April, a bipartisan group of U.S. senators introduced the “Marketplace Fairness Act,” which would require remote sellers to collect sales tax for states that have the levy. It was the latest in a series of similar bills introduced over the past few years, none of which has been enacted.

In Olympia, that May 5 story in the Olympian identifies another, more immediate, challenge to the House proposal.

Sen. Dino Rossi, R-Sammamish, said he was skeptical of the tax because there is little history of it. He said he wanted to see how it works in Colorado before committing Washington to it.

Rossi, a GOP budget writer in the Republican-led Senate, said he didn’t want to support or oppose the online sales tax proposal before Democrats approve their tax package in the House.

“Nobody knows exactly how it would work and the magnitude and the reliability of that prediction,” he said.

Nationally, states see gold just beyond their reach, as Stateline reports.

Imagine having $26 billion dangling just in front of you, only to have it repeatedly jerked away. That’s the situation facing the 45 states that have a sales tax, as people do more of their shopping from the comfort of their couches, rather than in retail stores.

The $26 billion is what states estimate they could collect in sales taxes on products sold remotely — online and via mail order. But because taxes are not collected on most remote sales — with the exception of most Amazon sales — states aren’t capturing those potential billions in revenue.

For that reason, if no other, we can anticipate the efforts to capture the money will continue.