The SCOTUS issued a decision that blew open the flood gates holding back state sales tax laws. The decision is South Dakota v. Wayfair. It’s about the rights of states to collect taxes on sales by out-of-state companies to in-state buyers. Wayfair is a product of two phenomena: 1) the Internet, and 2) states desperate for money. For decades, the law was that states cannot tax sales unless the seller had a physical presence in the state where the customer was located. The last time the SCOTUS upheld that rule was 1992, when there was no Internet and remote catalog sales amounted to $180 billion. By 2017 Internet driven remote sales were about $500 billion. The states look at that and scream, “We want our money!” Court decisions on tax policy are less about constitutional limitations and more about “we need the money.” Such is the case with Wayfair. Since states are “losing money,” they want the law changed. This is proof that no tax system will be adequate when the need for revenue becomes too great. At some point, tax collectors have to break thumbs to get paid. Cash-strapped states should rather find ways to cut spending than break thumbs in the form of arbitrary rule changes.
