A law professor writes an op-ed in the New York Times today on a coming U.S. Supreme Court case with huge importance in both Arkansas and the rest of the country.

The court will decide whether the explosion of the Internet — and its devastation of local retailing — along with easier mechanics should reverse a precedent that said retailers weren’t required to collect sales taxes in states where they have no physical presence.


In theory, purchasers are supposed to collect the “use” tax on such sales and remit them to state government, but virtually no one does.  The loss of revenue on Internet sales has particularly hurt local government, which is suffering a double whammy from decline in local retailers thanks to the Amazons of the world. (Amazon has grown so large it has begun voluntarily collecting and remitting sales taxes on its own sales in Arkansas and other similar states — but not those of merchants who share its website — though it has no physical presence in the state.)

A Supreme Court change would be a boon to cities, particularly those such as Little Rock limping along with stagnant revenue collections. A sudden infusion of money for the state (and the Amazon collections that started this year haven’t shown an enormous impact) would be a different political matter. Pressure would be strong in the controlling Republican Party to use the sales tax revenue to pave the way for another state income tax cut.


I’m with the writer who says the Supreme Court should revisit the issue. The premise enjoys broad support, even among some Republicans, such as Rep. Steve Womack. He is carrying legislation to correct the imbalance in part because Walmart, headquartered in his district, has brick-and-mortar operations in all 50 states and is at a competitive disadvantage on-line against pure Internet retailers.

Writes David Herzig in the Times:


There are compelling reasons to overturn Quill [the currently controlling precedent]. Most important, according to market analysis, state and local governments will lose about $34 billion in revenue in 2018 because of the physical presence requirement, a number that will rise to nearly $52 billion by 2022. In 1992, in e-commerce’s infancy, the loss was $700 million to $3 billion.

For their part, retailers say that out-of-state retailers should not be deputized as an agent of the state. That job, they say, is for the state to do, through the enforcement of the use tax. This is essentially the same argument made in Quill.

But Quill arguments are less compelling now than in 1992. For example, the administrative and record-keeping burden didn’t disappear under the physical-presence rule — it was merely shifted to consumers, who are left to comply with tax obligations on their own. And improvements in technology mean that collecting sales tax for different states isn’t nearly the burden for retailers that it would have been in 1992.

The Quill decision has now not only hurt states but also distorted behavior of big retailers: It discourages them from establishing a brick-and-mortar location (and creating jobs) in a new state and being liable for collecting its sales tax. Online retailers also enjoy state services — like roads that allow their products to be delivered efficiently to customers — without contributing to their upkeep.