Sales taxes on retail purchases are widely charged in 45 U.S. states,* but not all businesses are treated equally. Businesses that sell via “brick and mortar” storefronts are forced by state governments to collect the tax on behalf of the states, but remote retailers lacking in-state facilities (online and catalog merchants) escape such responsibility (due to federal restrictions on states), effectively discounting their prices. This penalizes storefront businesses with a 4-11 percent handicap, creating a huge deterrent to patronizing local businesses (both independent and chain) and prevents genuine market competition.
The American Independent Business Alliance supports national reform to eliminate this government handicap on storefront businesses. * Alaska, Delaware, Montana, New Hampshire, and Oregon do not levy statewide sales taxes.
- This 2015 paper from Georgetown Policy Report is full of useful information and links
- The Institute for Local Self Reliance is a great starting point for an overview of the sales tax debate
- Summary of two Congressional bills pending in 2015 that would affect online sales tax exemptions.
- National Conference on State Legislatures’ e-commerce page estimates foregone tax revenues by state, as does the interactive map on this page from Governing magazine.
- University of Tennessee study (2009) estimates $11.4 billion in sales taxes owed by buyers on Internet sales in 2012 will go uncollected
- Stand With Main Street hosts many additional resources and provides legislative updates.
- EFairnessNow.org hosts more information from sales tax reform advocates.
- The Heartland Institute makes the arguments opposing our position on sales tax reform.
- For Amazon-focused reporting on this topic, see the “Subsides and Sales Tax Avoidance” section of our All About Amazon collection.
- Streamlined Sales Tax Governing Board
- Multistate Tax Commission
- Online Retailer Sales Volume in the U.S. for 2007-2010 (by quarter)
- The American Booksellers Association provides fact sheets and often publishes updates in their weekly newsletter, Bookselling This Week.
- The International Council of Shopping Centers hosts a huge library of resources for reform advocates.
- In a 2015 opinion, Supreme Court Justice Kennedy called for revisiting the Quill ruling that limits states’ ability to collect sales tax.
Legal Documents and Court Rulings
- Quill v. N. Dakota 1992 U.S. Supreme Court ruling
- Overview of Geoffrey v. S. Carolina 1993 S. Carolina Supreme Court ruling on nexus
- Current, Inc. v. California 1994 County Court ruling on nexus
- Text of Streamlined Use and Sales Tax Agreement (as of May 4, 2016)
- The U.S. Supreme Court Should Accept a Nexus Case by Friedman, Ganz and Scully. Paper detailing the mixed record of nexus cases.
How Did State Sales Taxes Start?
According to the 1902 census, state governments generated 45 percent of revenues from property taxes while the figure for local governments raised 78 percent.1
Changing economic conditions drove states to diversify revenue sources and the stock market crash of 1929, with accompanying devaluation of property, led Kentucky and Mississippi to enact the first broad-based general sale taxes in 1930.2
New York City imposed the first local sales tax in 1934. By 1962, 12 states granted local governments the power to impose sales taxes. Today, more than half of all municipalities receive some revenue from sales tax, though often only as a share of state taxes.
In 1969, Vermont became the 45 state to enact a sales tax, leaving Alaska, Delaware, Montana, New Hampshire, and Oregon as the only states not imposing them. Some local entities collect some sales taxes within those states.
1. Michael A. Pagano, dean of the College of Urban Planning and Public Affairs at the U. of Illinois at Chicago
2. Sales tax on specific items was common throughout U.S history (and may date back as far as 2000 BC in Egypt). Such item-specific taxes proliferated during the U.S. Civil War, though many were terminated after the war’s conclusion.
For more on issues surrounding of Amazon.com Corporation in this realm, see Amazon’s Physical Presence (Nexus) in U.S. States and the Sales Tax Battle.
- Yes, Small Business Wants Online Giants to Collect Sales Tax, November, 2013 (AMIBA is a founding member of Advocates for Independent Business)
- This commentary in TriplePundit (first published in BusinessWeek) summarizes our perspective. See also our endorsement of 2013 Marketplace Fairness Act.
Our All About Amazon library has much more on that corporation’s role in this issue
Tags: sales tax