SCOTUS usurps power of Congress, regulates interstate commerce in online business ruling

By Joel Griffith | The Daily Signal

Thursday’s Supreme Court decision in South Dakota v. Wayfair, Inc. threatens to upend online commerce, drive thousands of small entrepreneurs out of business, and hike prices for hundreds of millions of consumers.

Under prior law, states could not force remote retailers to collect and remit sales taxes on their behalf unless the business had a “physical presence” within the state. This requirement no longer applies, potentially saddling remote retailers—many of whom are small businesses—with onerous compliance costs related to the nation’s 12,000 plus taxing jurisdictions, many with their own rates, bases, rules, and regulations.

Congress remains the proper place to address the issue of online sales taxation. Under the commerce clause of the Constitution, Congress alone possesses the ultimate power—delegated by the states at the nation’s founding—to regulate interstate commerce.

Thursday’s ruling further highlights the need for congressional action adequately balancing the interests of competing stakeholders with national economic growth. Because the Supreme Court is ill-equipped to handle the complexities of interstate tax policy debates, further litigation and economic uncertainty will arise if Congress fails to exercise its constitutional right to regulate interstate commerce.

As the court held in General Motors Corp. v. Tracy, “Congress has the capacity to investigate and analyze facts beyond anything the judiciary could match, joined with the authority of the commerce power… .”

The constitutional framework is working as designed, evidenced by Congress’ continued engagement on the issue. Both the House Committee on the Judiciary and the Senate Committee on Finance are actively involved.

For instance, the Internet Tax Freedom Act, first enacted in 1998, prohibited state and local governments from imposing discriminatory taxes on goods, services, and information purchased online. In 2014, the Judiciary Committee issued the Basic Principles of Internet Sales Tax. In 2016, House Judiciary Chair Robert Goodlatte released a draft of the Online Sales Simplification Act of 2016. And this past legislative session, Congress debated two other proposals: the Remote Transactions Parity Act of 2017 and the No Regulation Without Representation Act of 2017.

As Congress exercises its authority under the commerce clause, the growth in e-commerce is already providing sales tax revenue for states. Of the 10 top online retailers, nine (including Costco, Walmart, and Best Buy) have physical locations and thus collect sales tax on the vast majority of purchases due to physical presence being established.

Even more stunning, the use tax is collected on all online sales by 17 of the top 18 online retailers (including Amazon). The Government Accountability Officenow estimates that 75 to 80 percent of all potential online sales tax revenue is already collectible under existing law.

Indeed, states are flush with sales tax revenue. State and local sales tax revenue jumped 23 percent from 2011 through 2017, eclipsing combined inflation (9 percent) and population growth (5 percent).

Ironically, the ongoing legal uncertainty from this strategy to overturn existing case law presents an obstacle to legislative action. States such as South Dakota, reject compromise in hopes that the Supreme Court will grant them all the powers they seek to impose regulatory burdens on small businesses and entrepreneurs outside their borders in manners far more extreme than Congress is likely to allow.

Only action by a Congress selected by voters in hundreds of locales from across the continent can safeguard the promise of “No Regulation Without Representation.” The responsibility to regulate this important aspect of interstate commerce constitutionally lies with Congress.

The court’s ruling should spur Congress to continue and conclude the important progress it has already made to protect businesses, consumers, and innovation from aggressive out-of-state tax collectors.

Image courtesy of Flickr/Blogtrepreneur
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