Main street West Virginia received some long-awaited good news last week when the U.S. Supreme Court issued a ruling in South Dakota v. Wayfair that will allow states to apply their sales tax to internet purchases. For years online sellers have been able to avoid collecting state sales taxes if they had no physical presence in the state.
Online retail has grown dramatically in recent years. E-commerce represented 13 percent of all retail sales in 2017, accounting for $453 billion. Some of the larger online retailers, such as Amazon, collect sales tax, but not all do. It’s estimated that annually states lose out on about $33 billion in uncollected sales taxes.
West Virginia taxpayers are supposed to pay the sales tax on all items purchased online from out-of-state retailers when they file their state tax returns, but West Virginia Retailer’s Association President Bridget Lambert says that usually doesn’t happen.
“Unfortunately, many citizens do not remit the tax and the only time a citizen is forced to (pay) is during an audit where non-payment is identified,” Lambert said on TalkLine.
The Court’s decisions means West Virginia and other states can, if they choose, require retailers to collect sales tax from online purchases. Frequent Internet shoppers may groan because they’re losing a discount, but Lambert argues the loophole created an unfair edge for e-commerce over brick-and-mortar businesses.
“Online only retailers have a competitive advantage of six percent over West Virginia based main street merchants on every sale,” Lambert said. However, that may now change. “Retailers across the state with stores in local communities will have a level playing field in regard to the collection of sales tax.”
Notably, Governor Justice opposes collecting the sales tax on internet commerce, even though it would mean more money for state coffers. “When I took office and our state was struggling financially, at that desperate time, I might have considered supporting legislation to enforce West Virginia sales tax on out-of-state transactions,” Justice said in a news release. “However, now I do not support adding additional taxes on our people in this manner.”
Lambert hopes to change the Governor’s mind. “Our goal is for Governor Justice to understand this issue and join with the retail industry to secure the future of retailers that are located across our state from main street to the mall.”
Of course this is a two-way street since West Virginia companies that rely on sales across the country would have to collect sales taxes. That means trying to figure out the tax laws in thousands of state and local jurisdictions.
Justice Anthony Kennedy addressed that challenge in the majority opinion that South Dakota exempts online retailers with less than $100,000 in sales or fewer than 200 transactions annually. Additionally, South Dakota is one of the more than 20 states (including West Virginia) that has adopted the Streamlined Sales and Use Tax Agreement that “standardizes taxes to reduce administrative and compliance costs.”
One of the fundamental principles of taxation is fairness—is the tax collected in an impartial and equitable manner? The current system allowing e-commerce sales to go untaxed does not meet that standard and discriminates against brick-and-mortar businesses and citizens who frequent them.
The Court’s decision means states can once again put all commerce on a more level playing field on sales tax.