Mail Sales Tax: Collection Is Sticking Point
Once again, everyone’s haggling over whether to charge sales tax on mail orders, one of those debates that keeps rising and falling and never ends. It’s just gone--again--to the U.S. Supreme Court, which as much as said it will take an act of Congress to settle the issue, if not an act of God.
This doesn’t imply any question of morality: Right and wrong was never the issue. Indeed, all sides seem to agree that mail order sales should be taxed. It’s just that no one can figure out how, and the high court’s recent decision brought us no closer to a solution.
Here’s the problem: It’s easy to add sales tax to a purchase when buyer, seller and transaction are all in the same place. It’s not even hard with catalogue purchases, given a store in the same state, as with Sears or J. C. Penney. But if the company is in Ohio and an Idaho consumer is writing an order, who’s going to calculate, collect and send in Idaho’s sales tax? No one, usually.
Consumers haven’t complained. In fact, over two decades, they took catalogue sales from almost nothing to more than $30 billion a year, and maybe half are from those store catalogues. (Counting magazine subscriptions, fund raising and television shopping, the whole “direct marketing” industry could be four times that, but the sales tax issue so far touches only catalogues.)
This rankles many states, which could use any extra tax monies. It also rankles conventional retailers, who do have to collect sales taxes from customers. Together, they’ve kept the rankle public.
In fact, it’s been settled and unsettled several times. A 1967 Supreme Court case laid down the rule that only companies with a “physical presence” in a state had to collect its sales tax. A subsequent case stretched the definition of “physical presence” to include not just retail outlets but any office at all.
While a congressional bill tried to eliminate the “presence” requirement entirely, various states expanded it. California, for example, said that any company soliciting orders in California, or paid by card or check on a California bank, had that in-state “presence.” So California’s Board of Equalization estimated the national sales of various catalogue houses, guessed California’s share, and billed the companies for taxes.
The board got a “range of response,” says Chuck Cordell, chief of its field operations, “from total silence to argument to litigation to compliance.” It also got an extra $72 million a year until a court challenge resulted in an injunction last year that stopped the money flow.
Last month’s Supreme Court judgment invalidated a North Dakota law that required any company soliciting orders in that state to collect sales tax. It thus reaffirmed the old rule about physical presence, but left open the possibility that Congress could change the rule.
Sales tax on individual sweaters, toys and fancy foods doesn’t seem a big deal. But it’s likely to be a hard fight--yet again.
On one side are the states, drawn to the tax possibility just Because It’s There. First, it’s good money: Estimates of potential revenue run to several billion dollars annually, nationwide. Second, it’s easy money, easier than slapping property tax on the air overhead, or trying to collect on narcotics sales.
It’s also a perfectly legitimate consumption tax, whose purpose, says California Board of Equalization Chairman Brad Sherman, “is to tax people on their ability to pay, measured by how many sweaters, or computers, they can afford to buy.” Less legitimate, he says, is for companies “to say, ‘We’ll sell our sweaters for 50 bucks, and the consumer should send $4 to Sacramento, but leave us out of it.’ ”
On the other side are catalogue companies, which see the alternative as equally ludicrous. For them to assess and collect all the different state taxes would be an administrative headache that could raise catalogue prices and even drive small firms out of business.
Many orders, moreover, are written by consumers. Can everyone multiply $28.95 by 6.5% “and get it right?” asks Robert Levering, the Direct Marketing Assn.’s senior vice president. Who knows whether to apply tax on postage and handling (yes on handling, no on postage, no if postage and handling are bundled together)? Given the inconvenience, says Levering, consumers might just put the whole business aside.
Not that the industry questions the tax itself: A state, says Levering, “has absolute power to tax its people on breathing.” Catalogue companies just don’t want the duty of collecting it.
In the middle are consumers--well, not quite the middle, given the 700,000 customers who sent industry-initiated protests to Washington last time Congress considered the tax. Why would anyone want a new tax, particularly when they hear its collection will cost them a lot more than the tax itself?
It’s just a new twist on an old truth: Taxing things is easy. It’s collecting the taxes that’s tough.
