Policy Market Blog

Wayfair

Martin Kennedy - Friday, October 05, 2018

Wayfair

In a 5–4 decision in June the Supreme Court upheld South Dakota’s online sales tax collection statute.  They held that the “physical presence” test, under the court’s 1992 case Quill Corp. v. North Dakota does not limit a state’s ability to collect sales tax on on-line purchases.
 
Gif Thornton (Adams Reese) explained the ruling and implications in a piece in the Tennessee Bar Journal, complete with legal mumbo jumbo.  Justice Kennedy was joined by Alito, Ginsburg, Thomas, and Gorsuch.   
 
TPM:  The implications are overwhelming.  Small businesses face staggering compliance costs, yet at the same time traditional brick-and-mortar stores stand to gain protection from online operators.  Justice Roberts, in dissent, said that “this important question of current economic policy” belongs to Congress.  He continues…

Texas taxes sales of plain deodorant at 6.25 percent but imposes no tax on deodorant with antiperspirant. Illinois categorizes Twix and Snickers bars — chocolate-and-caramel confections usually displayed side-by-side in the candy aisle — as food and candy, respectively (Twix have flour; Snickers don’t), and taxes them differently.

From an economic efficiency standpoint, online commerce is to be preferred over conventional brick-and-mortar.  The new paradigm, ordering on your computer and having it delivered, lowers overall transactions costs dramatically (transactions costs refers to the friction that impedes buyers and sellers from coming together). 

In plain English, you don’t have to get in your car, use the roads, and get in your neighbor’s way (contribute to congestion) every time you want to buy something. 

On the other hand, should small retailers who contribute to the local community be kept at a disadvantage? 

Those are our first thoughts, not necessarily our deepest.  And this…
… it’s created a situation where federal intervention -- the creation of a single, uniform standard – is appropriate in so far as local governments don’t have the capacity, obviously, to coordinate policy so as to lower compliance costs.   



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