- May 2013
Twenty years ago in Quill v. North Dakota (504 U.S. 298 (1992)), the U.S. Supreme Court ruled that the lack of a physical presence (“substantial nexus”) in a State by an out-of-state seller (including catalog and on-line sellers) prevents that State from compelling the remote seller to collect and remit that State’s sales and use tax. Where the seller does not do so, it falls on the local purchaser to remit the tax to the State. Although this has proven extremely difficult to enforce, purchasers can be audited and may be subject to penalties for failing to remit their owed sales taxes to their states. The Court invited Congress to resolve this issue, stating, “The underlying issue here is one that Congress may be better qualified to resolve and one that it has the ultimate power to resolve.”
Since the Court’s disposal of the Quill case, the volume of e-commerce has and continues to skyrocket (e-commerce sales in the retail sector alone reached $140 billion in 2010), principally as a result of on-line sales via the internet. The evolution of this marketplace dynamic places “brick and mortar” sellers which must collect and remit state sales and use taxes at a clear price-generated competitive disadvantage (as much as 10 percent in some states) with their on-line competitors.
Against the backdrop of Quill the growth of e-commerce also exacts a substantial toll on financially strapped state governments which on average derive 20 percent of their annual revenue from sales and use taxes. Unless Quill is overruled by Federal legislation, the already vast amount of lost state revenue – the National Conference of State Legislatures estimates that states stand to lose approximately $23 billion in uncollected sales tax revenue in 2012 – will continue to grow as the volume of e-commerce further explodes.
This issue has been debated on Capitol Hill for the better part of the past decade. In the 113th Congress, two identical and bipartisan bills introduced in the Senate (S. 336, Enzi, R-WY and 29 cosponsors and H.R. 684, Womack, R- AR-3 and 51 cosponsors), the Marketplace Fairness Act of 2013, proposes to empower the states to require sellers not qualifying for a small seller exemption to collect and remit sales and use taxes on remote sales. Proponents’ success on a March 22nd “test” vote taken in the Senate on a non-binding amendment to the Fiscal Year 2014 budget resolution offered by Sens. Enzi and Richard Durbin (D-IL) has given this issue an important boost. The amendment in essence “endorsing” the Marketplace Fairness Act passed 75 (26 R, 47 D, 2 I) – 24 (19 R, 5 D).
NAW supports marketplace fairness legislation and is continuing to work with our allies in the Marketplace Fairness Coalition to move this issue to enactment.