Congress Should Make the Call on Online Sales Tax Collection
In the case of Wayfair v. South Dakota, the Supreme Court reversed a longstanding protection against overly aggressive state regulation.Online shopping is relatively commonplace these days – Etsy, eBay, and many other sites for sellers both large and small. While you may be familiar with how to shop online, the debate over how sales taxes on your purchases should be collected has been a topic of significant discussion in Congress in recent years. I’ve been working on a fair and simple solution to this issue with other lawmakers from across the country. However, despite the fact that Congress should be the ones deciding the way forward, the Supreme Court recently handed down a ruling that will impact the way online businesses across the country are regulated.
In the case of Wayfair v. South Dakota, the Supreme Court reversed a longstanding protection against overly aggressive state regulation. The Court, for the first time, allowed states to impose sales tax collection requirements on out-of-state businesses with no physical presence in the taxing state. Basically, a Virginia business could be subject to the regulations of Arkansas! It’s not only the merits of the Court’s decision that were the problem, but the fact that the Court made a decision on a clearly legislative issue. Ever since the Court announced that it would hear this case, I have stressed that the ability to regulate interstate commerce falls squarely under the jurisdiction of Congress, not the courts.
For most of American history, it was accepted that the statutes of one state have no effect in another. This understanding helped to prevent businesses of one state from being shut down by a multitude of complex and conflicting state and local regulations imposed by states where the business was not even located. The longstanding physical-presence standard, which the Court eliminated in Wayfair, only allowed a state to require a business to collect sales tax for a state if the business had a physical presence in that state. This standard preserved political accountability, which is essential to deter complex compliance burdens for small businesses.
The Wayfair decision has created a nightmare for American businesses and small online sellers. They must now comply with the different tax rates and rules of, and be subject to audits by, as many as 10,000 taxing jurisdictions across the U.S. where they have no say at the ballot box and thus no representation in the state and local governments imposing the rules.
The Wayfair decision will create significant roadblocks and uncertainty for small businesses and ultimately harm consumers. As Chairman of the House Judiciary Committee, I held a hearing last month to examine the problems that the Court’s decision created and what can be done to solve them. The Supreme Court should never have heard this case. The briefs filed with the Court were filled with discussions of economics, the usefulness of software, trends in the retail industry, and countless other non-legal questions. I stand firm that Congress was, and still is, the appropriate institution to resolve these policy questions, not the Supreme Court.