Today is the 25th anniversary of the Supreme Court’s Quill decision, which has cost states and localities tens of billions of dollars in uncollected sales taxes and hurt many local businesses. Quill reaffirmed a 1967 decision that a state cannot require an out-of-state retailer to charge sales tax to its residents unless the business has a facility, employees, or another kind of “physical presence” in the state. Interstate commerce exploded just a few years later with the Internet. Companies like Amazon, Dell, and Overstock quickly became retail behemoths, in no small part due to their typical 5-10 percent price advantage over their Main Street competitors because they didn’t have to charge the tax. By 2010, many independent book, camera, and home-goods stores were no longer around, and credible studies pegged the annual state and local government revenue loss from uncollected sales taxes on online sales alone at more than $10 billion.
Since Quill, state and local officials have pursued four major strategies to try to undo the fiscal and economic damage. They have:
Federal legislation remains the preferred solution to this problem. State laws can only chip away at Quill’s physical presence standard, and there’s no guarantee that the Supreme Court will take a new test case or overturn Quill if it does. Moreover, only through federal legislation will remote sellers likely see the simplification and harmonization of state sales tax laws that can minimize their compliance efforts and costs. But Congress’ window to act is rapidly closing. States are increasingly taking matters into their own hands. A nationally uniform solution may soon be off the table for good.