Cindi Ross Scoppe

One of our biggest tax problems just disappeared, no thanks to the Legislature

Tax-free online purchases helped drive shoppers away from stores in their communities. Those purchases will now be taxed in South Carolina and many other states.
Tax-free online purchases helped drive shoppers away from stores in their communities. Those purchases will now be taxed in South Carolina and many other states. Getty Images/iStockphoto

YOUR ALARM doesn’t go off, so you oversleep, and your car has four flat tires, and you’re late for your chemistry final, and when you finally get there the room isn’t where it’s supposed to be, and the exam is in Russian literature — which you never even signed up for — and it’s an oral exam, and the examiners are speaking Japanese, and you can’t make your mouth move so you can tell them what an awful mistake this is. And you don’t have any clothes on.

Then suddenly you wake up in a cold sweat and realize you haven’t been in school in decades, and there is no test, and your tires are fine, and you can speak perfectly.

And poof. Without you doing anything, your problem has disappeared.

That’s what just happened to South Carolina.

A bunch of other states too, but South Carolina is the one we care about.

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Cindi Ross Scoppe

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In 1992, the U.S. Supreme Court ruled that retailers couldn’t be required to collect sales taxes for states where they don’t have a physical presence. This was commonly referred to as prohibiting states from collecting taxes on out-of-state purchases, but states were free to try all they wanted to get the purchasers to pay. I remember legislators grousing about the ruling, because it cut off some revenue from mail-order purchases. Remember those? But this was before anyone had heard of online shopping, so it was just an annoyance.

It was the tsunami we saw coming, as the infant internet suddenly became the nation’s shopping mall.

In the intervening 26 years, the Quill Corp. v. North Dakota decision became the biggest threat to the stability of South Carolina’s tax system — well, other than the Legislature itself, which loves few things more than eroding our tax base by doling out special tax breaks to special interests.

It was the tsunami we saw coming, as the infant internet suddenly became the nation’s shopping mall, thanks in no small part to tax-free shopping. Online purchases skyrocketed from zero to $5 billion in South Carolina, and kept rising, as the luxury of having the world at our fingertips combined with the convenience of buying it on our phones and that thrilling little bonus of getting away with something when we didn’t have to pay sales taxes.

Yet our Legislature did nothing to reduce its growing impact.

The internet exemption was probably our most unfair tax exemption — no small thing in a state that charges the same sales tax on a used Kia as a Learjet.

Granted, the Legislature couldn’t make companies without a physical presence in South Carolina collect our 6 percent sales tax. And it probably wouldn’t be cost-efficient to go harder after purchasers, who are legally required to pay a use tax on their untaxed purchases via their income tax forms.

Still, lawmakers could have done other things to blunt the impact of untaxed e-commerce. Like changing our tax system so we rely less on the sales tax and more on the income tax. Like eliminating some of the scores of special-interest sales tax exemptions, rather than adding more every year. Which would not only make the e-commerce hit less painful but also make our whole sales tax less painful, and less unfair. But they did nothing.

Then, suddenly, the Supreme Court looked back at Quill and said, “Never mind.” And poof. Without the Legislature doing anything, our problem disappeared.

Thank goodness. The internet exemption was probably our most unfair tax exemption — no small thing in a state that charges the same $500 sales tax on a used Kia as a Learjet. Yet there is every reason to doubt that our tax-phobic Legislature would vote to remove an exemption. Even though it stole sales from every retail business in our state, by giving a 6 percent tax advantage to businesses that have nothing to do with our state.

E-commerce is still a problem for dress shops and shoe stores and bookstores and every other sort of local retail business you can think of. But thanks to the court’s South Dakota v. Wayfair decision — which stared down stare decisis, declaring Quill a “judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services” to a state’s residents — e-commerce is no longer a problem for our state government.

Technically, every company you buy stuff from online is now supposed to be charging you state and local sales taxes, because state law says any company that markets its products to S.C. residents must collect taxes on the resulting purchases, no matter where it’s located. That pre-Quill law remained on the books all these years, held in abeyance by the high court. So once the court reversed itself, it was the law again — like what would happen if the high court suddenly reversed itself on same-sex marriages, which remain banned by an implicitly invalidated S.C. law.

At last, it seems, at least this one long national nightmare has ended.

I doubt any out-of-state e-commerce companies actually are collecting S.C. sales taxes, because they’re waiting for the S.C. Revenue Department to say when it’s going to start enforcing the law, and on what. Last month’s Wayfair ruling said a state can require businesses to collect the sales tax if they have an “economic presence” in the state. The court didn’t define that, but South Dakota set at selling more than $100,000 worth of products or services or completing more than 200 separate sales to its residents. And S.C. Revenue Director Hartley Powell told legislators this week he would use those same thresholds.

There will be more court battles as states experiment with pushing those numbers lower, but we won’t have to worry about that. This is a huge victory for fairness. At last, it seems, at least this one long national nightmare has ended.

Ms. Scoppe writes editorials and columns for The State. Reach her at cscoppe@thestate.com or (803) 771-8571 or follow her on Twitter or like her on Facebook @CindiScoppe.

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