Iowa Governor Terry Branstad recently joined with a dozen other Republican governors in calling for Congress to pass a measure that would allow states to require the largest online retailers to collect sales taxes. In pushing for the measure, however, Republican governors are finding that their biggest roadblock is opposition from their own party in Congress, who perceive the measure as being a “tax increase.”
In addition to getting in trouble with their own party, Republican governors are getting pushback from the anti-tax enforcer Grover Norquist, who argues that legislation allowing states to require online retailers to collect sales taxes is a tax increase because consumers will ultimately pay more in taxes. Republican Pennsylvania Governor Tom Corbett’s office defied Norquist, however, correctly arguing (subscription required) that collecting online sales taxes is “just enforcing existing laws” and not adding a new tax.
The fact is that only retailers can collect sales taxes, but the Supreme Court ruled in the 1992 catalog sales case of Quill v. North Dakota that states can only require remote retailers – which includes online sellers – to collect the tax if they have a so-called physical presence in the state. This has left many states scrambling to cut piecemeal deals with major online retailers (notably Amazon.com) who may not have a physical presence in their state in order to collect at least some of those sales taxes.
The messiness of these deals has made Republican and Democratic governors realize that for practical purposes what is really needed is a federal solution, such as the Main Street Fairness act, to clear a path for states to enforce sales tax collection.
The growth in online shopping is staggering and it is costing states tens of millions a year in lost sales tax revenues. Asking online retailers to do what brick and mortar stores do and collect sales tax (PDF) is just common sense. This new push by Republican governors to make it happen might just be the thing that makes the Quill ruling history, and brings sales tax law into the 21st Century.