It’s Past Time to Level the Playing Field

The year 1992 seems like a long, long time ago. Bill Clinton was president, Duke won the NCAA Championship, the Cosby Show was the top-rated show on television and I was about to graduate from what was then called Elon College.

But 1992 also had a dramatic effect on the retail industry because it was the year the United States Supreme Court issued its ruling in the Quill case. The issue at hand in the Quill case was whether the State of North Dakota could require the catalogue retailer Quill to collect sales tax for sales made to North Dakota customers if Quill did not have a physical presence in North Dakota to constitute “nexus.” The United States Supreme Court ruled that absent a physical presence in North Dakota, requiring Quill to collect sales tax for sales made in North Dakota would create an undue burden on interstate commerce.

In 1992, the Supreme Court Justices writing the Quill decision could not see ahead to what the impact of their decision would be with first the world-wide web, then smartphones, and now Google and Alexa which allow same-day delivery of products to consumers’ homes with the push of a button or a simple voice command. In 1992, we certainly did not live in the global society with no state lines that we live in today. The Quill decision resulted in remote retailers springing up in low population areas where they could efficiently operate and sell goods without collecting sales tax giving them a 6% plus price differential over brick and mortar retailers all the while using the state roads and landfills to facilitate their business model.

Meanwhile, state and local governments watched as their revenues dropped and store fronts closed and reacted by raising sales tax and other taxes on the retailers that remained in their community placing brick and mortar retailers at a further disadvantage. At one point, a University of Tennessee study determined that North Carolina was losing more than $400 million in uncollected sales tax. NCRMA took action at the state level beginning in 1999 and adopted the Streamlined Sales Tax which required sales tax to be collected if the remote retailers utilized affiliates to click-through to their sites. In 2014, with bi-partisan support, the

United States Senate approved the Marketplace Fairness Act that would have required the collection of sales tax by remote sellers only to watch the United States House fail to take action for fear of “taxing the internet.”

Despite an outcry from brick and mortar retailers to level the playing field and that a “sale is a sale” and sales tax should be applied to every sale, the United States Congress has kicked the can down the road for too long. In 2017, the South Dakota Legislature enacted legislation that required remote retailers with more than $100,000 in sales or 200 sales transactions to South Dakota consumers to collect sales tax under the theory that the remote retailer had “economic nexus.” This law was enacted with the full understanding that the law would be challenged as unconstitutional by remote retailers and with the hope of getting the case to the United States Supreme Court so the Quill decision could be revisited. Wayfair, Newegg and other remote retailers affected by the South Dakota decision did bring such a legal challenge and prevailed at every level of the court system. Luckily, the United States Supreme Court agreed to accept the case for review.

On March 5, 2018, NCRMA, through the Council of State Retail Association, signed onto a friend of the court brief filed with the United States Supreme Court arguing that the crux of the Quill decision had changed with technology and the modern economy and the Quill decision should be reversed. (See the press release on page 6.) A reversal of the Quill decision would level the playing field for all retailers.

Retailers have never been afraid of competition and are the best example of a free-market economy. For the most part, if I want to open a store across the street from your store to compete against you I am free to do so. If the Quill decision is reversed, like we all strongly believe it should be, retailers will still be operating in a competitive and ever-changing economy but at least when you sell a $100 item you would know your competition has to charge $6.75 in sales tax just like you do. I often use a sports analogy to explain this to people outside the retail industry which is fitting because as I write this, we are in the throes of March Madness. Imagine the outrage if we spotted one team a 6-point advantage at the beginning of a game.

We can’t go back to a pre-1992 world. Internet retailers are here to stay. But, you are the backbone of your community. You support the local high school through donations, raffle prizes, silent auction items. You sponsor little league teams, town festivals and charity golf tournaments. You’re also on the front lines in times of disaster, reaching out to your neighbors and helping speed the recovery process. However, if you haven’t already, I urge you to consider creating an online presence. Customers expect it and you need one to stay competitive in today’s economy.

The Supreme Court’s decision is one of the things from 1992 that certainly needs to be revisited although that can’t be said about everything from 1992. Carolina and State fans certainly don’t want to revisit Duke’s National Championship and I, for one, would prefer not to revisit Billy Ray Cyrus (Miley Cyrus’ dad) singing “Achy Breaky Heart.” You’re singing it in your head now, aren’t you? You’re welcome…