Illinois News

Supreme Court sales tax ruling won't be a quick fix for slumping government revenues

By Herald-Whig
Posted: Jun. 25, 2018 11:00 am

QUINCY -- Last week's ruling by the U.S. Supreme Court concerning online sales tax collections may eventually help states and local units of government get taxes they've seen declining.

But right now, nobody knows exactly how things are going to change.

"I don't think anybody knows the true impact of this yet," said Dennis Boudreau, founder and CEO of 1st in Video-Music World Inc.

Boudreau's company operates Your Electronic Warehouse, Discount Golf World and the retail section of 4DiscountTravel.com, which are based in Quincy. After 20 years of doing online sales, Boudreau said his operation qualifies as one of "the old guys" in the business.

On Friday, Boudreau said he had read 20 news stories on the Supreme Court decision and gotten 20 different interpretations of what will happen with online sales tax collections.

"This is probably going to have to go through Congress before it gets solved," Boudreau said.

The Supreme Court's 5-4 opinion Thursday overruled a pair of decades-old decisions that states said cost them billions of dollars in lost revenue annually. The decisions made it more difficult for states to collect sales tax on certain online purchases, and more than 40 states had asked the high court for action. Five states don't charge sales tax.

The cases the court overturned said that if a business was shipping a customer's purchase to a state where the business didn't have a physical presence such as a warehouse or office, the business didn't have to collect sales tax for the state. Customers were generally responsible for paying the sales tax to the state themselves if they weren't charged it, but most didn't realize they owed it and few paid.

Justice Anthony Kennedy wrote that the previous decisions were flawed.

"Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the states," he wrote in an opinion joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Kennedy wrote that the rule "limited States' ability to seek long-term prosperity and has prevented market participants from competing on an even playing field."

Quincy Mayor Kyle Moore said the sales tax ruling is a step in the right direction. He just doesn't know all the details.

"I don't know how much it will mean in additional dollars. Current law in Illinois essentially says the tax collections are passed on to municipalities based on population" instead of being based on where a buyer lives, Moore said.

It would take congressional action to send those tax collections to the point of delivery.

Boudreau said point of delivery collections also would create problems. At this time there are 2,856 different tax collection rates that would need to be factored into software so that online shippers know how much to collect and where to remit the taxes.

"The biggest fight will be with Amazon. Most people don't realize that third parties deal with about 50 percent of Amazon sales," Boudreau said.

In those cases, Amazon collects the purchase price and pays a third party to ship it, or the online giant ships the item from one of its many warehouses and has the "Amazon fulfiller" restock the warehouse. Those online partners of Amazon don't get all the data on the buyer and their exact location.

Jeff Bezos, founder and CEO of Amazon, has told U.S. lawmakers that those third party companies are the reason why online tax collections are unworkable.

Boudreau is OK with a nationwide collection of sales taxes for online sales. But he would like to see Congress establish something consistent so that more than 2,800 tax rates and routes are not needed.

The Associated Press provided information for this story.

Things to Do

Sign up for Email Alerts