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Op-ed: Online sales tax deserves honest debate

Published December 6, 2013 4:48 pm

This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Phillip Snowden said it well: "Truth is the first casualty in war." That applies in the war over Internet taxation. The Dec. 5 Tribune editorial, "Online sales should be taxed like any other," is a prime example.

The first truth casualty is the assertion that the Supreme Court announced "it would not stop states from collecting sales tax on online purchases." The court said nothing like it.

While the court did decline to hear a case about New York sales tax law, it did nothing else.

Five years ago, New York passed a law requiring out-of-state retailers to collect taxes on sales to New York residents if those retailers used a certain type of New York-based advertiser. When the law passed, most out-of-state retailers stopped using those advertisers and New York was sued.

After the case proceeded through the courts, the New York court ruled in favor of New York. In contrast, Illinois' highest court struck down Illinois' version of the same law.

In a way, the New York case litigants, including Overstock.com, invited the court to resolve things. The court merely declined that invitation. So the status quo remains. Contrary to the editorial's implications, New York today is not collecting more Internet taxes than before the court declined to hear the case.

The second truth casualty is to say Internet sales are "exempt" from sales tax. The subtitle argues: "Online sales don't deserve exemption."

In truth, there is no exemption. Most states, including Utah, tax all consumer purchases wherever made. The difference is in who has the collection obligation — the state or the retailer.

Long ago, states shifted their tax collection job to local stores. However, the Constitution prevents states from doing the same to out-of-state retailers without an in-state physical presence. That is Supreme Court law for over 20 years.

There is good reason for the court's views. Out-of-state retailers lack physical presence and the benefit of governmental services and political clout. Would New York listen to Utah-based Overstock.com on the subject of high sales taxes or complexity of compliance? Certainly not. If Overstock.com has a fire in its Utah warehouse, will the Chicago Fire Department respond? Certainly not. So why, if there are no benefits to the retailer, should out-of-state retailers shoulder New York's or Illinois' heavy tax collection burden — all for free?

The debate over the "Internet tax" is not about "taxing the Internet" or "Internet tax exemptions." Rather it is about who collects taxes for states and under what circumstances.

Congress, under the Constitution, has exclusive authority to regulate interstate commerce. Since this is an area of regulating interstate commerce, Overstock.com believes Congress can and should frame a law that resolves this state tax collection problem. Unfortunately, states have not been at the table looking for anything but the absolute power to force out-of-state retailers to collect their taxes for them.

An example is the misnamed Senate-passed Marketplace Fairness Act which allows states to continue creating complex systems to force nationwide tax collection obligations. This is not a uniform federal solution. Fortunately, the House of Representatives seems uninterested in this proposal and is considering more sensible alternatives.

But this much is clear: Congress should act.

Overstock.com has lobbied Congress to enact a law that allows states to use out-of-state retailers to collect tax, but sets standard thresholds of fairness — meeting minimal principles that ease burdens, complexities and costs out-of-state retailers bear in taking on the states' collection job across state lines. That's only fair.

We want a solution. But we will not get there unless truth has a seat at the table.

Jonathan E. Johnson III is the executive vice chairman at Overstock.com, Inc.