I'm sure you're all aware of the ongoing civil war between e-commerce and brick-and-mortar retail, which has led to a currently ongoing U.S. Supreme Court case determining whether or not If there should be an online sales tax to dissuade people from shopping online in a last-ditch effort to save shopping malls, retail chains, and small businesses. The case in question is known as South Dakota v. Wayfair, Inc. which is related to a similar case in 1992 known as Quill Corp. v. North Dakota where North Dakota tried to force Quill Corp. (which was a mail-order shop based outside the state) to pay taxes for sales shipped into the state.
The U.S. Supreme Court eventually ruled in favor of Quill Corp. saying that states cannot charge sales taxes to a "vendor whose only contacts with the taxing state are by mail or common carrier." Although the ruling was made in a different era, it would seem to apply to online retailers. The real question is whether or not If the nature of business has changed enough to the point where the U.S. Supreme Court needs to reconsider the rule. The ruling that was made in favor of Quill Corp. by the U.S. Supreme Court is actually an interpretation of the U.S. Constitution's Commerce Clause, whose mainly concerned with the federal government's ability to regulate the national economy without interference from the states.
Because the Quill Corp. decision is merely an interpretation of the Commerce Clause, the U.S. Supreme Court could uphold the U.S. Constitution and still throw out Quill Corp.'s physical presence requirement. So what are the Constitutional boundaries? Well for one, the Commerce Clause limits states' taxing of sales between two or more states. So in other words, the Commerce Clause doesn't care about a regular sale that happens entirely within one state, but it's triggered when a sale involves two or more states ("interstate"). The Commerce Clause doesn't forbid taxes on any interstate sale as it only prohibits those taxes which would interfere with the federal government's plans to regulate the national economy.
The U.S. Supreme Court tried to narrow this down over time when in 1977 they came up with a four-factor analysis to determine whether or not If the Commerce Clause was being violated by a state tax (Complete Auto Transit, Inc. v. Brady). These are the four factors listed within our infographic. Now the fourth "substantial nexus" factor is where South Dakota v. Wayfair, Inc.'s controversy lies. The Quill Corp. decision which came 15 years after the U.S. Supreme Court established the four-factor analysis, decided to narrow the substantial nexus factor even further.
Now apparently the substantial nexus factor has something to do with a company's footprint in the state meaning that a state cannot tax a company that isn't substantially connected to the state in a certain way. Quill Corp. decided that having a substantial connection with a state must at least include a physical presence there where as the U.S. Supreme Court thought that the clarity of of the physical presence requirement outweighed its potential arbitrariness. They later admitted that the rule "appears artificial at its edges" but said the artificiality "is more than offset by the benefits of a clear rule".
This coming June the U.S. Supreme Court will decide whether to reformulate the substantial nexus requirement and ditch the physical presence requirement. Perhaps they'll find that a substantial economic connection with a state is more apt than a physical presence. They might choose to leave the physical presence requirement intact but choose to redefine it. For example, Massachusetts has declared that companies that place cookies on Massachusetts' residents computers are physically present in the state. In Illinois, Snickers are taxed at a higher rate than Twix because foods containing flour doesn't count as candy.
Bottom line is that If the U.S. Supreme Court overrules the Quill Corp. decision, or otherwise reformulates the substantial nexus requirement to include broader relationships between companies and states, then consumers will end up paying more for online purchases where states will gain a significant amount of money to spend on general budget items like public schools, departments, and programs. Online retailers like eBay would go out of business from having to overcharge their products because they would be required by law to collect sales taxes nationwide since tax rates and rules tend to vary by state, city, and county.
So you're probably wondering how this will all impact the Online Singles Market for Trading Card Games / Collectible Card Games. For one there would be less people buying online card singles to help complete their decks because they already know that the LGS has a hard time carrying them due to low supply and high demand. The LGS isn't going to go back to the way it was before e-commerce exploded when we still had to rely on pricing guides with Scrye Magazine and InQuest Gamer. E-commerce has made it to where people are no longer obligated to play the booster box lottery anymore where all the proceeds they end up saving for themselves could've went to help keep their LGS from closing it's doors for good.
Articles related to topic:
The U.S. Supreme Court eventually ruled in favor of Quill Corp. saying that states cannot charge sales taxes to a "vendor whose only contacts with the taxing state are by mail or common carrier." Although the ruling was made in a different era, it would seem to apply to online retailers. The real question is whether or not If the nature of business has changed enough to the point where the U.S. Supreme Court needs to reconsider the rule. The ruling that was made in favor of Quill Corp. by the U.S. Supreme Court is actually an interpretation of the U.S. Constitution's Commerce Clause, whose mainly concerned with the federal government's ability to regulate the national economy without interference from the states.
Because the Quill Corp. decision is merely an interpretation of the Commerce Clause, the U.S. Supreme Court could uphold the U.S. Constitution and still throw out Quill Corp.'s physical presence requirement. So what are the Constitutional boundaries? Well for one, the Commerce Clause limits states' taxing of sales between two or more states. So in other words, the Commerce Clause doesn't care about a regular sale that happens entirely within one state, but it's triggered when a sale involves two or more states ("interstate"). The Commerce Clause doesn't forbid taxes on any interstate sale as it only prohibits those taxes which would interfere with the federal government's plans to regulate the national economy.
The U.S. Supreme Court tried to narrow this down over time when in 1977 they came up with a four-factor analysis to determine whether or not If the Commerce Clause was being violated by a state tax (Complete Auto Transit, Inc. v. Brady). These are the four factors listed within our infographic. Now the fourth "substantial nexus" factor is where South Dakota v. Wayfair, Inc.'s controversy lies. The Quill Corp. decision which came 15 years after the U.S. Supreme Court established the four-factor analysis, decided to narrow the substantial nexus factor even further.
Now apparently the substantial nexus factor has something to do with a company's footprint in the state meaning that a state cannot tax a company that isn't substantially connected to the state in a certain way. Quill Corp. decided that having a substantial connection with a state must at least include a physical presence there where as the U.S. Supreme Court thought that the clarity of of the physical presence requirement outweighed its potential arbitrariness. They later admitted that the rule "appears artificial at its edges" but said the artificiality "is more than offset by the benefits of a clear rule".
This coming June the U.S. Supreme Court will decide whether to reformulate the substantial nexus requirement and ditch the physical presence requirement. Perhaps they'll find that a substantial economic connection with a state is more apt than a physical presence. They might choose to leave the physical presence requirement intact but choose to redefine it. For example, Massachusetts has declared that companies that place cookies on Massachusetts' residents computers are physically present in the state. In Illinois, Snickers are taxed at a higher rate than Twix because foods containing flour doesn't count as candy.
Bottom line is that If the U.S. Supreme Court overrules the Quill Corp. decision, or otherwise reformulates the substantial nexus requirement to include broader relationships between companies and states, then consumers will end up paying more for online purchases where states will gain a significant amount of money to spend on general budget items like public schools, departments, and programs. Online retailers like eBay would go out of business from having to overcharge their products because they would be required by law to collect sales taxes nationwide since tax rates and rules tend to vary by state, city, and county.
So you're probably wondering how this will all impact the Online Singles Market for Trading Card Games / Collectible Card Games. For one there would be less people buying online card singles to help complete their decks because they already know that the LGS has a hard time carrying them due to low supply and high demand. The LGS isn't going to go back to the way it was before e-commerce exploded when we still had to rely on pricing guides with Scrye Magazine and InQuest Gamer. E-commerce has made it to where people are no longer obligated to play the booster box lottery anymore where all the proceeds they end up saving for themselves could've went to help keep their LGS from closing it's doors for good.
Articles related to topic:
- USA Today: State taxes on Internet sales would doom our small business - https://www.usatoday.com/story/opinion/2018/04/13/state-sales-taxes-online-retail-supreme-court-column/510301002/
- Rolling for Initiative: Deep in the Heart of (Sales) Taxes - https://icv2.com/articles/columns/view/39719/rolling-initiative-deep-heart-sales-taxes
- Bloomberg: States Want to Force Online Retailers to Collect Billions in Sales Tax - https://www.bloomberg.com/news/arti...-face-high-court-test-as-states-seek-billions
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