Getting NJ’s Share of Online Sales Tax
By Albert B. Kelly
If there’s one thing that seems to be a constant these days,
it’s the fact that small downtowns are struggling to survive in the second
decade 21st century. That’s true not only for Bridgeton, but other
small downtowns throughout New Jersey and across the nation. This is not a new
thing, but something that’s been years in the making.
Long gone are the days when people did the bulk of their
shopping in a community’s downtown and gone are the days when that retail
activity and the taxes paid on such activity helped sustain the tax base, whether
on the local level or at the state level. These negative impacts peaked with growth
of e-commerce because a vast amount of online sales were basically tax free.
This imbalance between brick and mortar stores and online
sales stemmed from a Supreme Court decision back in 1992 (Quill v. North
Dakota) which found that states could not collect sales tax from online sellers
unless that seller had a physical presence in the state. Aside from issues like
convenience, this imbalance meant that brick and mortar stores were at an even
greater disadvantage in terms of price and this helped further hollow out local
retail.
Little did we envision back in 1992, just how the online
marketplace and internet sales would end up changing and driving the retail
landscape in the way that it has. Thinking back to that time, there were a good
many people wondering if the internet was just a fad, destined to go the way of
the pet rock. No one envisioned these changes just as no one from my generation
saw baseball cards becoming a thing- we clipped them onto our bike tires for
the sound.
Only in the last few years were serious efforts made to
address the imbalance between local brick and mortar stores and online retail. In
2014, in an effort to address the problems caused by this loss of tax revenue,
New Jersey passed what has become known as the “Amazon Law”, so named because
Amazon.com is one of the biggest online retailers out there.
This law requires larger internet sellers with no physical
presence in the state to collect and pay sales tax from NJ customers if it has
a relationship with a New Jersey-based businesses that provide customer
referrals through its website and the out-of-state seller has (read online
seller) gross receipts from their NJ sales that is $10k or more during the
previous four calendar quarters.
Of course when it comes to taxes, internet or no internet,
nothing is ever simple and there are various exceptions and qualifiers, but the
basic idea is to try and address these imbalances. But a few weeks ago, with the
Supreme Court leveled the playing field in a significant way by ruling that
online retailers have to pay sales tax just as brick and mortar retailers do.
Not only does this level the playing field for brick and mortar stores, but it
also means that states and towns can now realize the benefit of billions of dollars
in online sales tax revenues.
The case (South Dakota v. Wayfair Inc) overturns the 1992 ruling
and means that states can now enact laws that require online retailers to
collect and pay sales tax for all of these online transactions. If the figures
put out by the U.S Commerce Department are correct, something in the
neighborhood of $390 billion in e-commerce took place in 2016, which accounted
for over 10% of all retail sales. That figure today might well be close to a
half a trillion dollars.
Whatever percentage of that applies to New Jersey, my guess
is that the amount of sales tax that would come into the State treasury would
not be insignificant. Now is a good time to revisit the whole package of laws
and codes in New Jersey to ensure that we collect the full amount of sales tax,
including collecting taxes on third-party sales. It might also be a good time
to consider how some small part of these additional revenues might help local
coffers especially since local sales tax is collected at the State level.
Maybe exempting internet sellers from collecting and paying
sales tax was exactly the right thing for its time because it allowed
e-commerce enough space and breathing room to get established to become would
it would ultimately be. But times have changed and our laws need to change with
them.