Ruling makes it easier for states to collect online sales tax
Cities rejoice over U.S. Supreme Court decision
OKLAHOMA CITY – Municipal and state leaders have been voicing dreams of internet sales taxes for years, and the U.S. Supreme Court granted their wish on Thursday.
Oklahoma has been one of the scores of states advocating for legal changes that would allow governments to require sales tax remittance from companies with no physical location in the jurisdiction. In Oklahoma, Gov. Mary Fallin argued that as the economy changes, tax policy should as well and that this kind of modernization is vital for state services. In cities, officials have said that dwindling sales taxes coming from brick-and-mortar locations have been wreaking havoc on roads and other infrastructure the city cares for.
The U.S. Supreme Court’s 5-4 decision Thursday overruled a pair of decades-old decisions that had made it more difficult for states to collect sales tax on certain online purchases. The cases the court overturned said that if a business was shipping a customer’s purchase to a state where the business didn’t have a physical presence, such as a warehouse or office, the seller didn’t have to collect sales tax for the state.
Justice Anthony Kennedy wrote that the previous decisions were flawed.
“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” he wrote in an opinion joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Kennedy wrote that the rule “limited States’ ability to seek long-term prosperity and has prevented market participants from competing on an even playing field.”
Until now, customers have been generally responsible for paying the sales tax to the state themselves if they weren’t charged it, but most didn’t realize they owed it and few paid.
Oklahoma was already working to fix that problem. Lawmakers passed House Bill 1019 in April. The measure, which is expected to raise $20.5 million, requires companies to keep a record of what Oklahoma customers spend on their goods, then report that number to the state so officials can add to residents’ tax bills.
State finance officials are still working on how to implement that policy, said Paula Ross, the spokeswoman for the Oklahoma Tax Commission. She said it’s unclear how the iteration of sales tax policy that the court upheld on Thursday would affect Oklahoma’s coffers.
There are several factors going into play. Projections for online sales shift often. It’s unclear how different provisions in the Supreme Court decision will affect businesses in Oklahoma in terms of exemptions.
“It is difficult to pinpoint an exact number,” Ross said. “It’s just an ongoing effort.”
In the meantime, local government officials are celebrating. Norman McNickle is the city manager of Stillwater. When lawmakers were considering HB 1019, he urged its passage. He said Stillwater has seen significant damage because of internet sales facing exemptions. The fiscal year ending soon saw a decrease of $13 million in sales tax revenue. The city used to spend $8 million on roads annually and has cut that to about $4.5 million. He said then and on Thursday that his city is particularly subject to the reductions in revenue because of internet sales because the city is home to Oklahoma State University.
“Better than half of our population is of the age that makes significant use of internet and internet purchases,” he said. “I’m thrilled with their decision.”
Fallin’s office responded for a request for comment with a written statement. It reiterated that many residents did not know they were responsible for tracking their online spending and requisite sales tax and that the U.S. Supreme Court made the right decision in overturning the past rules.
“We have to help our local communities keep local businesses healthy so that cities and towns can fund core services,” Fallin’s quote reads in part. “I appreciate Amazon and other retailers who already have agreed to collect Oklahoma sales tax on items sold directly through their companies.”
She called on Congress to adopt more laws that modernize the sales tax code and level the playing field for small businesses.
The Associated Press contributed to this story.