One of the signature moments of President Donald Trump’s time in office thus far has been the passage of his Tax Cuts and Jobs Act of 2017, which reduced tax rates on individuals and lowered the corporate tax rate.
So why is the president speaking out in favor of a tax increase that could mitigate the impact of the cuts he just passed?
The tax increase the president supports is the basis for a case being heard before the Supreme Court this week.
South Dakota is asking the court to consider overturning a 1992 ruling which says online retailers are only required to collect sales tax in states where they have a physical presence. More than 40 states say they support South Dakota’s argument, claiming they’re losing out on billions of dollars of tax revenue each year.
HAPPENING TODAY: Crowds of people are lined up in the cold outside the Supreme Court this morning. They’re hoping to hear arguments as the justices decide if you should pay sales tax on your online purchases. A decision will be announced by late June. pic.twitter.com/gE2DrXODGj
— Ryan Hughes (@HughesWPTV) April 17, 2018
South Dakota, which does not have a state income tax, projects its revenue losses because of online sales that do not include sales tax at around $50 million annually.
The Trump administration is backing South Dakota in the case, saying the 1992 ruling is basically outdated because it did not take into account how rapidly e-commerce would expand.
“In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible, the states have ample authority to require those retailers to collect state sales taxes owed by their customers,” U.S. Solicitor General Noel Francisco said in a friend-of-the-court brief.
National Economic Council Director Larry Kudlow said in an interview with Fox Business that changing the law could level the playing field between traditional and e-commerce retailers.
“There was a time when we wanted the United States, as a matter of policy, to protect nascent internet businesses by keeping down the tax burden, but that time is long gone,” he said.
While large retailers like Walmart, Apple and Target already collect sales taxes on internet sales, smaller online retailers often do not.
Wayfair, one of the defendants in this week’s Supreme Court case, argues that overturning the law would put a burden on small- and medium-size online retailers who will have to navigate up to 16,000 different taxing units.
Several justices have indicated that Congress is the best place for a new law addressing the issue on a national basis. They have also raised concerns about the various states enacting wildly different laws, according to U.S. News and World Report.
The 1992 law South Dakota wants overturned actually has its roots in a 1967 ruling. In that case, the court ruled that states could not force mail-order catalog companies to collect sales taxes unless a buyer lived in a state where the company had a physical presence, such as retail store, headquarters or a distribution center.
The thinking was that mail-order companies generated only a fraction of revenues created by in-store sales, plus those companies would face administrative burdens by having to compute, collect and pay the various county and state sales taxes of their customers.
But states say billions of dollars have shifted from in-store sales to online sales, and software programs now make it relatively easy for businesses to compute, collect and pay the various taxes.
While arguments are being heard this week, the court is not expected to rule on the case until June.
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