We’re not sure if Supreme Court Justices whip out their mobile phones at Best Buy to check online reviews when shopping for a new dishwasher, or if they browse in bookstores but purchase their books online. Whatever their shopping habits, they’re being asked to consider the practices of webrooming and showrooming in a case with major significance to online sellers.
The Supreme Court will hear South Dakota v. Wayfair on April 17 in a case that could overturn Quill vs. North Dakota and allow tax agencies to force merchants with no physical presence in their states to calculate, collect, and remit sales tax on transactions made to their residents.
In a brief filed in November urging the Court to hear the case, the American Booksellers Association (ABA) said the Justices should overrule Quill and cited the practice of showrooming:
“Quill is deeply harmful to bricks-and-mortar retail stores. Quill has yielded the notorious practice of “showrooming,” where a customer browses in a bricks-and-mortar store, and then buys products online using a smartphone in order to avoid paying sales tax. That practice causes profound harm to independent bookstores, which have low profit margins in the best of times and cannot compete on price with online retailers that take advantage of Quill’s artificial competitive imbalance.”
The ABA also said, “Quill results in an artificial imbalance that creates a powerful incentive for customers to buy books online rather than from their local bookstore, and as such, causes significant competitive harm to its member bookstores.”
In December, Wayfair and its co-respondents Overstock.com and Newegg urged the Court not to grant cert (a month later, the Court agreed to hear the case). In the brief, they said studies proved that instances of showrooming were dwarfed by the opposite phenomenon, called webrooming, “in which consumers use a website to research a product (including detailed specifications and customer reviews) and then go to a local store to purchase it.”
While it’s fun to think of the “Supremes” learning the ins and outs of ecommerce, showrooming and webrooming are going to continue even if Quill is overturned. The question the High Court will consider is this: “Should this Court abrogate Quill’s sales-tax-only, physical-presence requirement?”
I strongly support States’ rights to collect sales tax already legally due in the for of use taxes on remote Internet transactions. Furthermore, the Quill decision on 1992 is based on catalogue retailers. Most importantly is the fact the case focuses on the method of collection not the obligation. Internet sales have never been tax free. The only question is how to best accomplish the remittances of taxes currently due, but instead being knowingly and unknowingly evaded.
The Internet market place was only in its infancy in 2002 when secure credit card processing came into existence. Processing sales tax was a burden in 1992 and until technology evolved was a burden. However today modern technologies easily enable real time shipping to over 10,000 different jurisdiction, and enable fast and reliable credit card processing as well as multiple features based on API protocols. API protocols enabling Internet retailers to earn on average 3 times more revenue per dollar of labor cost compared to brick and mortar retailing costs. Today the same API technologies now enable Internet merchants to automate sales tax processing.
Lets not forget about the Marketplace Fairness Act (MFA) which passed the US Senate with 70% support. This important legislation mandates States simplify their tax policies as SSUTA states already have done to make it easier for merchants to comply. Additionally, the MFA provides indemnification against audit risks for merchants. The MFA also includes a grace period and small seller exception. At this moment the Supreme Court should overturn Quill, and all the protective measures and States provided software will be forgotten. Should the SCOTUS overturn Quill merchants, lobbyists, journalists, Congressmen, and Senators will all wish they could turn back time in favor of the MFA. There are no guarantees of protective measures or grace periods in the Supreme Court’s decision. A favorable decision granting States rights to collect sales and use taxes on remote Internet transactions will place Internet retailers in the same boat as brick and mortar retailers. All retailers will simply have to pay to comply.
Internet retailers could have had it all. Free sales tax software, indemnification against audit risk, free automated returns, free sales tax rate updates etc…. Supporting existing consumption tax policies and providing States and communities the ability to utilize existing balanced tax policies would certainly aided in supporting and strengthening local communities. It will be interesting to see how Internet retailers react after the SCOTUS grants States’ rights to immediately begin collecting remote sales and use taxes (already legally due).
Since consumers have proven to date that voluntary and honorable remittances of taxes is not a viable solution, then the SCOTUS should should grant remote sales tax collection authority to States. Even if citizens are not up the task of honoring their tax obligations, technology can certainly eliminate the burden.
No offense “USRetailer”, but from your comment I’m guessing you represent one of the software companies standing to make millions from the overturn of Quill.
I’m a true US Retailer and have been selling online since 1999, and let me tell you something:
1) If Quill is overturned, Congress needs to step up and pass sensible legislation. There needs to be a SMALL BUSINESS EXEMPTION to any tax legislation. Some of the thresholds bandied about in past proposals have been 1 million dollars.
2) If Congress doesn’t include a small business exemption, this puts small American US Retailers at an even greater disadvantage on the worldwide stage, because Chinese sellers won’t be required to use the “free” software to collect and remit sales tax on all the sales they make over here.
3) If the Supreme Court and Congress end up killing off the true, small US Retailers, they will destroy one of the most innovative and successful American innovations since the railroad. If my 2 person shop and the millions more like it go out of business there won’t be any sales tax to collect. As Yosemite Sam says: “Two nothings is nothing.” Good luck filling the state coffers with zero sales.
Technology WILL NOT eliminate the tax burden for small online sellers, and we “can’t have it all”. There needs to be a SMALL BUSINESS EXEMPTION!
The only thing this does is drive higher prices for USA sellers. However, buyers should look at this, and stand against it. Because the next tax will be for all online buyers.
USRetailer: I spend 6-8 hours just filing NY State sales taxes to the hundreds of taxing jurisdictions for the 1100 items I sell yearly and if I sold clothing it would double. I can’t afford expensive software. Now you think adding tens of thousands of jurisdictions for all the other states would be simple for small sellers. Have you been drug tested recently? I pay oodles of taxes on my sales already and everyone whom purchases in their home state is already liable to pay taxes on the honor system. I wonder, just how is Oregon going to enforce me to collect sales tax for them while I’m in NY??? Because I have zero physical presence there, I’m going to say, take a flying leap, they can’t seize my property like NY can. And seriously, expecting states to simplify taxes??? In NY we pay sales tax on DMV fees which are taxes… Come on, get real. What is to stop small sellers whom are paying their fair share in income taxes to shutter their business, open multiple bank accounts, and sell keeping under the 200 item $20k limit going into each account? It would cost the government thousands per seller in income taxes they are now collecting if people played the system and the big retailers you defend could do nothing to stop it.
If we had to collect tax, think about this….. many jurisdictions we would owe small amounts ranging from pennies to maybe a few dollars. The cost of compliance on these small amounts would be more than the tax due. Even electronic transfer costs money, not to mention our time and the taxing authority labor costs.
Does it make fiscal sense for many of these taxing authorities to spend tens of thousands of dollars on labor to process these small payments? If some of these authorities require we file even of we owe no tax t them, does this make any sense?