Baker Institute expert: Growing interest among states to tax remote online sales

Rice University News & Media

Online retail giant Amazon recently announced that it would voluntarily start collecting sales taxes in four additional states — Hawaii, Idaho, Maine and New Mexico — making the company a nationwide state sales tax collector. The move comes at a time of growing interest among states in taxation of remote online sales as a potential source of revenue, according to an expert at Rice University’s Baker Institute for Public Policy.
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Joyce Beebe, fellow in public finance, outlined her insights in a new issue brief, “E-Commerce: Recent Developments in State Taxation of Online Sales.” She discusses state and federal legislation aimed at granting states greater authority to collect sales taxes on remote online sales as well as obstacles to those efforts.
E-commerce sales have been growing at a rapid rate over the last decade. Sales in 2015 were estimated to be $6.6 trillion in the manufacturing, wholesale, retail and service sectors, according to the U.S. Census Bureau. On the flip side, over the last four decades, the aggregate sales tax base across all states has contracted, creating financial issues for states that rely heavily on sales taxes.
Any discussion of online sales tax would not be complete without mentioning the Quill decision, Beebe said. In 1992, the U.S. Supreme Court ruling in Quill Corp. versus North Dakota precluded states from imposing a sales tax collection obligation on remote retailers that do not have a physical presence in the state. In other words, nexus (Latin for “bind” or “tie”), the determining factor of whether an out-of-state business selling products into a state is liable for collecting sales or use tax on sales into the state, arises only when the vendor has a physical presence in a state. In addition to establishing the physical presence rule, the Supreme Court also noted that Congress has the power under the Commerce Clause ...

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