The Supreme Court will hear arguments Tuesday in a case that could overturn a 25 year-old precedent that has been a cornerstone of tax law. The case, South Dakota v. Wayfair, has the state arguing that it has the right to require retailers with no physical presence in the state to collect sales taxes.
The Wall Street Journal’s op-ed page is begging the court to maintain its prohibition against requiring out-of-state companies to collect sales tax, arguing that court’s 1992 Quill decision establishing that standard “protects small businesses across the country from tax-grubbing politicians across the country,” and that overturning it would unleash a “Pandora’s box” of unaccountable taxation.
Cross-border taxation is an interesting problem constitutionally, as the founders explicitly grant Congress the right to regulate interstate commerce. The courts have interpreted this to mean that constitution prohibits states from passing laws that favor in-state trade over trade between states, a doctrine that Georgetown University Law professor Brian Galle has described as a “judge-made free-trade zone.” In the The 1992 Quill decision, Galle writes “The Supreme Court concluded that obliging an individual retailer to comply with the rules of what were then more than 6,000 separate possible sales-tax jurisdictions (a number that has now grown into the five figures) would be so burdensome that it would be a de facto restraint on interstate trade.”
There’s no surprise that the Wall Street Journal and other anti-tax activist groups agree with the assertion that such an obligation would be burdensome. What’s surprising is that the Journal is now arguing that Congress needs to settle the problem by passing a law that streamlines and rationalizes requirements to collect taxes across more than 10,000 American jurisdictions. That’s because Congress has been trying to do just that for years, only to be thwarted by the complaints of the Wall Street Journal’s editorial page and like-minded activists in Washington.
The Marketplace Fairness Act, which was first introduced to Congress by Republican Senator Mike Enzi in 2011, and has been consistently mischaracterized by the Journal as a new tax on goods and services sold over the Internet, and groups like Grover Norquist’s Americans for Tax Reform and the Heritage Foundation argued that it would be apostasy for conservatives to vote for it.
Meanwhile, state tax revenues continue to suffer from the Americans shopping more online, with half the states in the union still raising less tax revenue today than they did before the financial crisis. Though many large companies, like Amazon, have reached agreements with various states to collect online sales taxes for sales of their own inventory, third-party sellers on Amazon’s platform, and countless other smaller online players still benefit from the ability to charge a sale tax-free price at purchase.
Now, after years of filibustering a bipartisan solution to a thorny problem that has arose from a combination of America’s unique federal system, the Journal is decrying Pandora’s box the Supreme Court would unleash by figuring a non-legislative solution to this obvious problem.
This is a microcosm of the conservative movement of the past decade, when the Republican Party amassed large majorities in Congress and unprecedented levels of power in state and local government, but have made far less little impact public policy than they may have due to their refusal to compromise. This was true in both the crafting of Obamacare and its later implementation, and now the national party has ceded power over the issue of state sales tax enforcement.
The GOP claims to speak for the small business owner who has legitimate fears of serious disruptions to his business from a change in court doctrine. Instead of telling these folks that change can be fought and blocked, the conservative movement could have been be shepherding a compromise that takes its constituents into account. Now the issue is going back to the Supreme Court, the only game in town when our elected officials prefer to make speeches rather than laws.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.