NC Capitol

NC Capitol

Online sales tax ruling to boost state, local budgets

Posted June 22, 2018 7:02 p.m. EDT

— The U.S. Supreme Court's ruling Thursday that states can require online retailers to collect sales tax on purchases made by their residents could be a boon for state and local budgets in the coming years.

A 2017 study by the federal Government Accountability Office estimated that North Carolina was losing $235 million to $350 million a year in sales tax on online purchases.

"That's money that could be used for a number of things. You could take it and lower everybody's sales tax rate or everybody's income tax rate, or you could devote it to teacher pay or school construction," said Andy Ellen, president of the North Carolina Retail Merchants Association.

Ellen praised the ruling, which overturns a 1992 Supreme Court decision that said retailers have to collect taxes on sales only in states where they have a physical presence, such as a warehouse or a call center. That stance put brick-and-mortar businesses at a competitive disadvantage, he said.

"A customer will come in and say, 'I want to buy this item, but if I buy it through the internet, I don't have to pay a sales tax on it.' You take a TV that's $500, at 7 percent, that's a lot of money," Ellen said.

"They weren’t able to compete," he said of local businesses. "Not because of their own business practices, but because of a tax loophole."

The state Senate passed a bill last year similar to the South Dakota law that the Supreme Court upheld. It would require out-of-state merchants to collect sales tax if they do $100,000 in business or 200 transactions a year in North Carolina.

The House hasn't taken up the measure, however, and legislative leaders say they won't have time to finish work on it by the end of the General Assembly's session next week. They plan to enact it in next year's session.

Ellen said removing the incentive to buy online will help local retailers keep their doors open and contribute to their communities, Ellen said.

"It creates jobs. It helps with property tax. It helps their sales tax collections," he said. "It helps their community because those are the businesses that sponsor the Little League team and the high school band. They're not getting sponsored by a dot-com."

Anti-tax group Americans For Prosperity criticized the decision as bad for the economy.

"Allowing states to reach across borders and collect state taxes from online retailers is taxation without representation that will harm small businesses the most," AFP Policy Manager Mary Kate Hopkins said in a statement.

Although consumers will soon be paying more sales tax, Ellen notes those taxes have always been owed to the state. Having out-of-state retailers collect it is only fair, he added.

"The businesses that are doing business in North Carolina from out of state, that were using our roads to bring their goods in, that were using our landfills to put the boxes in, they're actually having to contribute back to the use of that product and collect the tax from consumers in North Carolina," he said.