How We Got to Where We Are Today

Congress has the power to bring the sales tax system into the 21st Century.

For over 20 years, states have been unable to enforce their own sales and use tax laws on sales by catalog and online sellers located outside of the state due to the 1992 Supreme Court decision Quill Corp. v. North Dakota. In that case, the Supreme Court ruled that complex state and local sales tax rules were a burden to interstate remote sellers, and therefore, out-of-state retailers should be exempt from collecting sales taxes unless they have a physical presence, such as a store or warehouse, in the purchaser’s state. Since sales tax collection from remote venders is an interstate commerce issue, the Supreme Court also advised that Congress has the authority to resolve the problem.

A lot has changed since 1992. Back then, Internet access in the American household was practically unheard of, as was the concept of shopping over the Internet. Since then, the retail marketplace has dramatically evolved right along with the Internet boom –online giants such as eBay, Amazon.com and Overstock.com have been founded, Smartphones have grown from simple electronic datebooks to fully connected devices with online shopping capabilities and e-commerce sales are growing at three times the rate of total retail sales.

The Quill decision has had a significant impact on local brick-and-mortar retailers. The ruling created an artificial disruption in the retail marketplace that prevents local businesses from getting a fair chance to compete against their online-only counterparts. Through this tax loophole, online retailers are able to enjoy a price advantage over their community-based counterparts that are forced to collect the sales tax—as high as 10% in certain states. As a result, existing tax policy is providing an unfair and unnecessary preference to out-of-state sellers, and it prevents state’s from enforcing their own sales and use tax laws. The online sales tax loophole is in direct conflict with the American entrepreneurial spirit of a competitive business environment. By not taking action, the government is picking winners (online sellers) and losers (all other retailers) in the marketplace and distorting the retail environment. This pricing advantage given to one group of competitors directly contradicts the free market values under which American businesses assume they operate. Retailers can compete on price, on customer service and on product, but they cannot compete fairly when one business enjoys a significant, government-sanctioned advantage.

There is no question that Internet retail has become an important option for making purchases. But traditional retail remains a critical part in the economic health and local flavor of our communities, while providing immediate access to goods. We need a commerce structure that is vibrant, viable and equitable for all retailers. And Congress has the power to allow a truly fair and free market for all retailers, while restoring states' rights to enforce their own sales and use tax laws. Congress can help bring the sales tax system into the 21st Century.

Tell Congress to support sales tax fairness and level the playing field for all retailers.

How We Got Where We Are Today