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Brick-and-mortar stores win with court decision

Cyber Monday was a day IBM Digital Analytics Benchmark says was the biggest e-commerce day in history. Ironically, it was also a day on which proponents for congressional passage of the Marketplace Fairness Act of 2013 might have gotten a boost from the U.S. Supreme Court, which announced its refusal to take up a challenge to a New York state law aimed at getting Internet sellers to collect and remit sales tax.

The Marketplace Fairness Act has already passed in the Senate and is pending in the House. It would not mandate but only update interstate commerce law so that the states could, if desired, require all Internet sales into their state be taxed in the same way all brick-and-mortar sales are taxed now.

Weary of waiting for Congress to act, a number of states like New York have passed laws that provide for a partial remedy. Specifically, these laws define as an in-state business any Internet seller that pays any in-state affiliate to refer customers to them. In-state businesses, of course, must collect sales tax.

Both and challenged the New York law, first in trial and later in appellate courts. They lost at both levels. Now, the last level, the Supreme Court, is not interested in reviewing the lower court decisions.

The last time I blogged on this subject in June, it seemed most readers commenting didn’t agree with me that Congress should pass the bill to level the playing field. For example, a reader named Brian wrote “the playing field will never be equal.” He’s probably right. But I find it hard to reconcile the fact that brick-and-mortar businesses and their customers pay a disproportionate share of a state’s tax burden. That’s not fair or level. What’s really happening, then, is that lawmakers refusing to act are protecting Internet commercial businesses at the expense of traditional main street retailers. These are the businesses who hire local employees, pay local property taxes for schools, support community events and, thereby, improve and advance their communities. Interestingly, they’re the very communities Internet sellers do business in while contributing nothing.

The two biggest objections to the proposed law seem to be: (1) the increased burden put on Internet sellers of the myriad tax rates around the country; and (2) the fact that leveling the playing field will not necessarily drive sales back to the brick-and-mortar stores anyway.

To the first objection, the bill provides that any state that might require Internet sellers to collect and remit the sales tax must provide computer programs/systems free to the sellers. It sounds complicated, but if we have the capacity to monitor the world’s cellphone calls I figure we can produce the needed computer programs to make life easy for Internet sellers. And it’s notable that the bill only applies to Internet sellers doing more than $1 million in business annually.

Second, anyone who really thinks passage of this bill will reduce the number of buyers using the Internet and drive them to their local retailer isn’t in the real world. People buy on the Internet today for two reasons: 1) primarily for the convenience of looking at a bigger selection while sitting on the couch and having it delivered to their door; and 2) secondarily the savings of 4 to 9 percent sales tax (shipping these days is mostly free).

The Supreme Court is right in not reviewing the New York case. But more than that, it signals that states (most needing more tax dollars) can tap into a big pile by passing laws like New York that, at least, partially solve the problem. But, logic and tax fairness still call for congressional passage of the Marketplace Fairness Act.


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