Oklahoma lawmakers are proposing to collect taxes on online purchases.
House Bill 2531 would expand the state government’s authority to collect sales taxes to include businesses located outside the state, including online retail companies such as Amazon.com.
Currently, online e-commerce businesses without physical locations in the state are not required to collect sales taxes from Oklahoma consumers.
The decision handed down in a 1991 U.S. Supreme Court case, Quill v. North Dakota, prohibits states from requiring businesses to collect and remit sales taxes from purchases made by consumers not located in the state in which the business maintains a physical presence.
Making ‘Mincemeat’ of Common Sense
Andrew Moylan, executive director and senior fellow of the R Street Institute, says the proposed bill makes “mincemeat” of tax policy.
“Oklahoma’s Internet sales tax bill makes mincemeat of the ‘physical presence’ standard, a common-sense principle that says the state can only impose tax obligations on businesses that are located in the state,” Moylan said. “This bedrock principle protects businesses and taxpayers from aggressive tax collection by states where they have no significant connection.
“The supposed upside is a small amount of additional revenue, but in a classic case of the cure being worse than the disease, the downside is a future where state tax powers have no geographical limits and any tax collector can target any business nationwide,” Moylan said.
Big Government, Big Business, Big Problems
Trent England, vice president for strategic initiatives at the Oklahoma Council of Public Affairs, says lawmakers and owners of established, physical businesses may be fans of the idea, but consumers will be the ones footing the bill.
“From a legislator’s point of view, it’s more revenue for the state,” England said. “The point of view from brick-and-mortar companies is it would level the playing field, because their competition would be paying the same sales tax they are paying. Unfortunately, the downside is it would very likely lead to litigation, … probably litigation at the state level challenging whether they can actually do this without it being considered a tax increase and federal litigation challenging this as invading Congress’ commerce powers.”
England says state governments should encourage interstate commerce and not treat it like an untapped piggy bank.
“States can’t impose their will on purely out-of-state businesses, which includes imposing a tax on out-of-state businesses simply because somebody in that state happens to order something from a business in another state,” England said.
Andrea Dillon ([email protected]) writes from Holly Springs, North Carolina.
James Alm and Mikhail I. Melnik, “Sales Taxes and the Decision to Purchase Online,” Public Finance Review, March 1, 2005: https://heartland.org/policy-documents/sales-taxes-and-decision-purchase-online/