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In a sweeping decision last Thursday, the US Supreme Court ended a dispute as old as the internet, ruling that all online sales are subject to the same state and local sales taxes that are collected on purchases at brick-and-mortar retailers. The decision will (potentially) inject billions of dollars into state coffers, but also increase prices for many online shoppers. By a 5-4 vote, the justices overturned past rulings that had shielded internet sellers from collecting taxes from customers in states where they had no stores, warehouses or other physical presence. Instead, the justices - addressing an issue that Congress has for years failed to resolve - brought internet commerce into line with the taxing rules that apply to mall shops, big box stores and other traditional retailers. Anthony M. Kennedy, speaking for the court, said it was not fair to allow remote sellers to escape the duty to collect and remit sales taxes. “It is unfair and unjust to those competitors, both local and out of state, who must remit the tax; to the consumers who must pay the tax; and to the states that seek fair enforcement of the sales tax - a tax many states for many years have considered an indispensable source for raising revenue,” he wrote in South Dakota vs. Wayfair. The court was split along unusual lines. Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch formed the majority. This ruling will set in motion varying degrees of conversation whether Congress should step in to modify the court ruling. The National Conference of State Legislatures called the ruling “a victory for Main Street America.” What happens next will have short term and longer term implications on California and our cities. In California, the state’s most recent estimates show the tax total could amount to about $1.5 billion a year. When the internet was in its infancy, online retailers such as Amazon took advantage of tax laws - which hadn’t yet caught up with technology - to offer low prices online. This ruling signals how much the internet has matured. Cases in point: Amazon is now among the world’s most valuable companies, and its CEO, Jeff Bezos, is the richest person in the world. San Jose-based eBay, a pioneering online marketplace, has 171 million active buyers around the globe. How will this impact Santa Cruz and our surrounding communities? Recall just three weeks ago, the voters of Santa Cruz City overwhelming passed Measure S. When the City Council approved placing Measure S on the June 5, 2018 primary ballot they offered information on the city’s website citing four trends affecting Santa Cruz and most California cities' budgets: Changes in traditional revenue sources - for example, the rise in online sales has deeply affected the sales tax revenue that cities get. You can read more on the Measure S information here. Most of the largest on-line retailers - Amazon, Walmart and Target already charge a sales tax so to the consumer it should not change purchasing behavior. What’s the next step? States first would have to adopt laws such as South Dakota’s, which was the subject of the Supreme Court ruling (PDF). South Dakota’s law requires out-of-state sellers who do more than $100,000 in annual business in the state, or more than 200 transactions with that state’s residents, to collect sales taxes. “Will states step forward and pass laws similar to South Dakota?” asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University. California, which joined with 41 other states, two territories and the District of Columbia in asking the Supreme Court for the very outcome the court delivered, is “currently reviewing the court’s opinion to determine next steps to support taxpayers,” said Paul Cambra, with the Office of Public Affairs for the California Department of Tax and Fee Administration, on Thursday. There is great incentive for the state to adopt an online tax system: The California Board of Equalization estimated last April that for fiscal years 2016-2017, the state’s total revenue losses “related to remote sellers for both businesses and household consumers” were about $1.453 billion. It expected that number to grow to $1.566 billion in 2017-2018, and $1.691 billion in 2018-2019. As we know well, the ups and downs of California’s economic picture is dominated by a tax system reliant on income tax and capital gains. That has been one of the telling reasons that cities turn to sales tax (and other fees) to get a surge to city coffers which in turn support local city services, programs, infrastructure improvements, parks and public employees. Now that one of the four major trends cited by the city for its sales tax increase has been subject to a US Supreme Court decision what will be the nexus be for Measure S and the approximately $3M annual revenue? Smaller businesses - some of which are third-party sellers on eBay and Amazon - may face even bigger concerns. Santa Cruz County is home to an economy primarily lead by tourism and agriculture. Yet, 82% of our businesses are small with less than nine employees and many of them use Internet sales as the direct access to consumers and their revenue. Did we just add more complexity to our economic future or will this decision offer the States to capture more sales taxes that can eventually flow back to local communities? The Chamber will hold a workshop on this subject during the summer to provide clarification and answers to the complexity of this new tax option. Stay tuned.
In a sweeping decision last Thursday, the US Supreme Court ended a dispute as old as the internet, ruling that all online sales are subject to the same state and local sales taxes that are collected on purchases at brick-and-mortar retailers. The decision will (potentially) inject billions of dollars into state coffers, but also increase prices for many online shoppers.
By a 5-4 vote, the justices overturned past rulings that had shielded internet sellers from collecting taxes from customers in states where they had no stores, warehouses or other physical presence. Instead, the justices - addressing an issue that Congress has for years failed to resolve - brought internet commerce into line with the taxing rules that apply to mall shops, big box stores and other traditional retailers.
Anthony M. Kennedy, speaking for the court, said it was not fair to allow remote sellers to escape the duty to collect and remit sales taxes. “It is unfair and unjust to those competitors, both local and out of state, who must remit the tax; to the consumers who must pay the tax; and to the states that seek fair enforcement of the sales tax - a tax many states for many years have considered an indispensable source for raising revenue,” he wrote in South Dakota vs. Wayfair. The court was split along unusual lines. Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch formed the majority.
This ruling will set in motion varying degrees of conversation whether Congress should step in to modify the court ruling.
The National Conference of State Legislatures called the ruling “a victory for Main Street America.”
What happens next will have short term and longer term implications on California and our cities. In California, the state’s most recent estimates show the tax total could amount to about $1.5 billion a year.
When the internet was in its infancy, online retailers such as Amazon took advantage of tax laws - which hadn’t yet caught up with technology - to offer low prices online. This ruling signals how much the internet has matured. Cases in point: Amazon is now among the world’s most valuable companies, and its CEO, Jeff Bezos, is the richest person in the world. San Jose-based eBay, a pioneering online marketplace, has 171 million active buyers around the globe.
How will this impact Santa Cruz and our surrounding communities? Recall just three weeks ago, the voters of Santa Cruz City overwhelming passed Measure S. When the City Council approved placing Measure S on the June 5, 2018 primary ballot they offered information on the city’s website citing four trends affecting Santa Cruz and most California cities' budgets: Changes in traditional revenue sources - for example, the rise in online sales has deeply affected the sales tax revenue that cities get. You can read more on the Measure S information here.
Most of the largest on-line retailers - Amazon, Walmart and Target already charge a sales tax so to the consumer it should not change purchasing behavior.
What’s the next step? States first would have to adopt laws such as South Dakota’s, which was the subject of the Supreme Court ruling (PDF). South Dakota’s law requires out-of-state sellers who do more than $100,000 in annual business in the state, or more than 200 transactions with that state’s residents, to collect sales taxes. “Will states step forward and pass laws similar to South Dakota?” asked Annette Nellen, director of the Masters in Science in Taxation program at San Jose State University.
California, which joined with 41 other states, two territories and the District of Columbia in asking the Supreme Court for the very outcome the court delivered, is “currently reviewing the court’s opinion to determine next steps to support taxpayers,” said Paul Cambra, with the Office of Public Affairs for the California Department of Tax and Fee Administration, on Thursday.
There is great incentive for the state to adopt an online tax system: The California Board of Equalization estimated last April that for fiscal years 2016-2017, the state’s total revenue losses “related to remote sellers for both businesses and household consumers” were about $1.453 billion. It expected that number to grow to $1.566 billion in 2017-2018, and $1.691 billion in 2018-2019.
As we know well, the ups and downs of California’s economic picture is dominated by a tax system reliant on income tax and capital gains. That has been one of the telling reasons that cities turn to sales tax (and other fees) to get a surge to city coffers which in turn support local city services, programs, infrastructure improvements, parks and public employees.
Now that one of the four major trends cited by the city for its sales tax increase has been subject to a US Supreme Court decision what will be the nexus be for Measure S and the approximately $3M annual revenue?
Smaller businesses - some of which are third-party sellers on eBay and Amazon - may face even bigger concerns. Santa Cruz County is home to an economy primarily lead by tourism and agriculture. Yet, 82% of our businesses are small with less than nine employees and many of them use Internet sales as the direct access to consumers and their revenue.
Did we just add more complexity to our economic future or will this decision offer the States to capture more sales taxes that can eventually flow back to local communities? The Chamber will hold a workshop on this subject during the summer to provide clarification and answers to the complexity of this new tax option. Stay tuned.