Wayfair

In this week's 5-4 Wayfair decision allowing state and local governments to compel out-of-state retailers to collect taxes on purchases made by their state residents, the Supreme Court broke decades of precedent. In addition, the justices exhibited a surprising lack of common sense by opening the door to a bureaucratic nightmare that could bury small businesses and give an unwarranted competitive advantage to large retailers like Amazon and Walmart. To say this puts an unfair burden on small e-commerce businesses is a gross understatement.

As the founder of a small Florida e-commerce business, I can state unequivocally that it is difficult and time-consuming to collect and pay sales taxes for Florida residents only. There are county by county surtaxes that vary considerably along with a base sales tax. The reporting form is obtuse and the rules change yearly. Now, multiply that bureaucratic burden by 50 states, and you begin to see what this ruling will create.

But of course, states that spend irresponsibly and need additional sources of revenue will rejoice. After all, what could be better than to force small out-of-state businesses to be their tax collectors on a nation-wide basis. A small business has no vote and no control in any state but their own, opening the door to abusive out-of-state audits and otherwise increasing the cost of doing business.

James Freeman comments:

For decades the law has prevented America’s 10,000 taxing authorities from imposing collection burdens on people with no physical presence in their jurisdictions. The court has now repealed that sensible standard and invited a million bureaucratic definitions to bloom. If Justices thought the physical-presence standard was arbitrary, wait until they get a look at the multitude of replacements that will begin oozing out of municipal revenue departments.

The idea that this is a restoration of federalism is a howler—states have never in the history of the republic enjoyed such power to hassle people outside their borders. The power to tax also means the power to impose reporting rules and the power to audit. Now state and city governments are free to impose burdens that crush distant small businesses and there will be no political accountability—because the tax collectors will be oppressing people with no representation in the abusive jurisdiction.

Those who argue that "fairness" demands that on-line retailers collect state and local taxes because brick and mortar retailers must do so, miss a very important point. The brick and mortar sellers collect, report, and pay taxes from one state and one state only, just like the majority of small on-line retailers have had to do. Now, on-line retailers are compelled to collect, report and pay taxes to 50 states. Is that fair and equitable? I don't think so. If anything, it could discourage some small e-commerce businesses from forming and damage a vibrant part of our retail economy. All because state and local politicians can't control their spending* and need more and more money for more and more wasteful policies and programs.

Normally, one would hope that Congress steps in and remedies the situation by developing federal legislation that would be fair to all. Given the current political climate, that's extremely unlikely. Government gets bigger in its reach and intrusiveness and the little guy takes it on the chin.

FOOTNOTE:
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* It's worth noting that politicians are not the only culprits here. Amazon, among many large e-commerce retailers, lobbied in favor of this ruling and is the big winner because: (1) it already has the bandwidth to meet the regulatory hurdles, (2) it can charge smaller sell-through retailers a "fee" to help them with compliance, thereby increasing its own revenue, and (3) the burden of tax collections will eliminate some small competitors and open the big's markets even more.