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Quill’s 20th Anniversary Should Be Its Last

An important milestone went unnoticed in recent days:  the 20th anniversary of the U.S. Supreme Court’s Quill Corporation v. North Dakota decision, which has inflicted untold damage on state and local government treasuries and economies.  In Quill, the Court upheld a 1967 decision and ruled that North Dakota could not require the mail-order catalog seller to charge North Dakota residents the state’s sales tax because it did not have employees or facilities in that state.  Buyers still owed the sales taxes — as they do to this day in every other state with a sales tax — but the state could only try to cajole the buyer into paying the tax directly to the state tax department.

Just three years after the Quill decision, interstate selling exploded with the commercialization of the Internet, and as a result, state and local revenue losses from untaxed interstate sales skyrocketed.   Untaxed Internet sales now cost states and localities an estimated $11 billion annually in missing sales taxes; untaxed catalog, TV home shopping, and other business-to-business sales together cost about the same.  That’s revenue that states, cities, and counties can’t afford to lose, especially at a time when they are continuing to cut jobs and services.

But Quill’s damage extends further.  The ability of companies like Amazon to sell without having to charge sales tax in most states has given them a substantial 5- to 10-percent price advantage over Main Street businesses.  Small independent bookstores are an endangered species, and even large retailers like Best Buy have cut local jobs.

What’s more, the de facto tax exemption for online sales has increased the regressivity of sales taxes.  Most middle- and upper-income families have the computers, Internet access, and credit cards needed to shop online tax free, but half of low-income families don’t.

But a path forward exists.  The Supreme Court’s decision left the door open for Congress to set rules under which states and localities could require even non-physically present sellers to charge sales taxes — and the time has come for policymakers to act.  Three bills pending before the House and Senate would grant collection authority to states that simplify their sales tax laws and harmonize them with those of other states.

Two of the three bills have bipartisan support, and they’ve been endorsed by editorial boards from Maine to California.  Twenty years is too long to wait for a sales tax that puts Main Street businesses and interstate retailers on a level playing field, treats all families equitably, and helps states and localities pay for critical services like education and health care.  Here’s hoping that Quill’s 20th anniversary is its last.