Taxation of Remote Commerce (1986 and 2008)
(formerly known as Taxation of Interstate Mail-Order Sales)
The Government Finance Officers Association (GFOA) is aware that governments have been seriously handicapped in their ability to collect legally-due sales and use taxes on interstate sales because of the 1967 U.S. Supreme Court National Bellas Hess and the 1992 U.S. Supreme Court Quill v North Dakota decisions.
These two decisions deny states and localities the legal authority to require the collection of sales and use taxes by remote sellers that have no physical presence in the taxing state. These decisions have resulted in a loss of millions of dollars in sales and use tax revenue and place local business and out-of-state retailers with a physical presence in taxing states at a serious competitive disadvantage.
State and local revenue losses and the competitive disadvantage of local brick and mortar businesses have been intensified in recent years because of the substantial growth in untaxed Internet or similar out-of-state sales. Many studies and projections demonstrate that e-commerce Internet sales and other types of remote purchases (e.g., booking online travel services which impact transient occupancy taxes, rental car taxes, and business gross receipt taxes) are accelerating at a rapid pace. Thus, uncollected or undercollected taxes could comprise a major share of all tax collection, rendering sales and use taxes ineffective. Ensuring that consumer paid taxes are collected and remitted correctly to the government is vital to maintain tax fairness and transparency.
The GFOA supports legislation that would prevent continued tax revenue losses and remove the competitive advantage now enjoyed by remote sellers. Furthermore, federal legislation should stipulate that online retailers and businesses, just like brick and mortar retailers and businesses, must remit the appropriate local taxes based on the purchase price of the good or service. In developing this legislation, GFOA asks that all changes be prospective.
Recommended for approval by the GFOA’s Executive Board, February 22, 2008.
Approved by the GFOA’s membership, June 17, 2008.