State Sales Tax and the Internet

               It is almost forty years ago that I rented an apartment in a two family house near the office. The landlady was an elderly woman who lived downstairs. She had managed to purchase a clothes washer in her basement, but couldn’t afford a dryer. So I bought it for her. It wasn’t soon after that that she began raising my rent…. often. In one year in particular it was increased four times. When I asked her why she was raising the rent so often she had a very simple explanation: “You got it and I need it.” Eventually I was into home ownership but I never forgot her simple explanation. It explains a lot of what goes on in tax administration. You got it and the government needs it. In this case it’s the states. Now in this great country of ours 45 states impose a sales tax. You can argue that such a tax is unfair in that it is applied without exemption to the rich and the poor. But that argument will get you nowhere. Up to now states have had no problem assessing the tax for sales that occur when the seller has a presence within a state. In some circumstances that presence could be mailing a catalog to a state’s residents and certainly if the business office is maintained or a manufacturing or a warehouse facility exists. New Jersey of course has its sales tax…and its use tax. The story goes that at one time the Director of the Division of Taxation asked to see the Use Tax form as he had purchased a sailboat out of state and was ready to cough up the Use tax since the state of acquisition did not have a sales tax. He was told the form was simply unavailable. After that time a resurgence in the collecting of the use tax was made by the state. You’ll notice when you file your New Jersey income tax return a use tax form is included. Years ago lawyers received letters in the mail asking them to consider what their use tax liability was for equipment purchased sales tax free. But can business be conducted without any physical contact to a state? Certainly the authors of the sales tax in the various states never dreamed that it would be possible to conduct business from out of nowhere. Enter the Internet. I don’t have to tell you that more things are being purchased and sold on the Internet then they are at your local mall. And the situation is only likely to get worse. In 2001, I wrote a book about Ocean Grove*, New Jersey called: “The Other Side of Ocean Grove.” It has been recently republished and is now available on the Internet and can be purchased by anybody anywhere on the planet at Amazon.com. I have noticed that Amazon apparently does collect sales tax. But the states feel billions of dollars of taxable transactions are going by the wayside. Enter the new Supreme Court case of South Dakota vs Wayfair No. 17 – 494. Since a ruling in 1992 by the Supreme Court, sales on the Internet have been almost sales tax free. Brick and mortar stores as well as the states themselves have complained vociferously. Now the Supreme Court has agreed to again review the issue and by June perhaps a decision may be rendered. In South Dakota, the state itself passed its own Internet sales tax law for sellers that have no physical presence in South Dakota and make over $100,000 in yearly sales or 200 transactions in the state. Sellers are required to collect sales tax from South Dakota buyers. Forty-one states have filed briefs with the court supporting South Dakota. It is estimated that the states could see $10 billion in additional revenue by increasing the sales tax base. Alaska, Delaware, Montana, New Hampshire and Oregon are the five states without sales tax. The Trump administration has also filed a brief supporting South Dakota and Congress itself may get into the act to create a uniform sales tax structure. In theory at least it should make no difference to purchasers as those who have not been subject to sales tax I’m sure are paying the use tax to their respective states….”and the dish ran away with the spoon.”


*Those who would like to discover Ocean Grove, New Jersey's most interesting seaside town need only go to Amazon.com and look for "The Other Side of Ocean Grove"----a classic of sorts.