The Unfairness of Wayfair

Errors of Enchantment is still digesting the deep awfulness that is the U.S. Supreme Court’s majority ruling in South Dakota v. Wayfair, Inc.

Yesterday, think tanks, lobbying groups, trade associations, and publications weighed in, offering a number of perspectives well worth reading:

● Americans for Prosperity: “The Supreme Court made clear in Quill v. North Dakota that subjecting online retailers to thousands of new taxing jurisdictions is not only bad for our economy, but it is unconstitutional. Only Congress has the authority to regulate interstate commerce.”

Citizens Against Government Waste: “With this decision, states and local governments now have the ability to force companies to take on the burdensome task of acting as tax collectors for more than 10,000 separate tax jurisdictions, regardless of where the company and any of its facilities are located.”

Competitive Enterprise Institute: “It is essential that Congress now clarify and reinforce the principles of physical presence and state tax competition to protect online commerce, smaller online businesses, and consumers. Hopefully, this unfortunate decision is the call to action that members of Congress need to provide these critical parameters for economic freedom.”

National Taxpayers Union: “For centuries, states have threatened the free flow of interstate commerce by attempting to tax and regulate businesses all across the country, regardless of location. By validating South Dakota’s law today, the Supreme Court has granted states the power to tax any business, anywhere in the country, simply for daring to use the internet to access a nationwide market.”

American Catalog Mailers Association: “This opens the door to more than 12,000 separate taxing jurisdictions who are now free to impose virtually any requirement on businesses nationwide. Gone too are the protections from unreasonable and countless compliance burdens on companies without a physical presence; in fact there may be no end to what politicos attempt to impose on those who do not vote for them.”

Americans for Tax Reform: “We fought the American Revolution in large part to oppose the very idea of taxation without representation.”

The Wall Street Journal: “The Court’s decision in effect declares open season for rapacious politicians to tax online commerce.”

Wayfair won’t have an immediate impact on most citizens of the Land of Enchantment. The state imposes a “compensating tax” — in other states, it’s referred to as a “use tax” — to “protect New Mexico businesspeople from unfair competition that would otherwise result from the importation of property … without payment of the gross receipts tax.” But statutorily, the New Mexico Taxation and Revenue Department is barred from enforcing the levy on “purchases of property for nonbusiness purposes.”

That exemption has never sat well with many members of the legislature, regardless of party, and with the High Court’s blessing, look for Santa Fe to embrace an Anthony Kennedy-approved scheme (“single, state-level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules”) to enhance and extend the state’s taxing authority.

For the reasons outlined above, Wayfair was a terrible ruling. But Errors of Enchantment has a perspective that we have yet to see presented. At its core, the court’s determination is a victory for political buck-passing. Whether it is called a use tax or a compensating tax, state governments already posses the authority to grab revenue from cross-border transactions. But forcing their citizens to comply, each time they order something online, is politically risky. Voters wouldn’t like doing that, and they’d be less inclined to reelect pols who impose such a burden. It’s much, much easier to seek an end run in the courts, and have a majority of black-robed activists force vendors — not buyers — to remit the tax.

Wayfair was always about the cowardice of legislative careerists — and their buddies in the other branches of government. They want the money, but they don’t want taxpayers to revolt. The ruling is a new low for greedy government at all levels. Let’s hope that Congress reasserts its legitimate role in the regulation of interstate commerce, and fixes the High Court’s blunder.

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9 Replies to “The Unfairness of Wayfair”

  1. I believe the ruling was correct. If I am in NM and buy from Wayfair, I think I should pay the GRT to NM. I actually think GRT or Sales taxes, with no exemptions, are the correct way for governments to raise revenue. Income and property taxes are unConstitutional in that they actually take direct wealth and property from people who earn it. A sales tax taxes anyone who has money, whether it is gotten through work, welfare or crime. So, when your local drug dealer buys his Mercedes he pays taxes.

    1. “I believe the ruling was correct. If I am in NM and buy from Wayfair, I think I should pay the GRT to NM.”

      Then cut a check to the New Mexico Taxation and Revenue Department every year for the untaxed online purchases you make. No one is stopping you.

      Don’t ask out-of-state companies, which derive no public “benefits” (police protection, for example) from local/state government here, to do revenucrats’ work for them.

      As I wrote in the post, making all New Mexicans comply with the “compensating tax” would be politically dangerous. Easier to get the judiciary to destroy the physical-presence standard for nexus. Wayfair is about political cowardice, nothing else.

      1. Actually, some States do require that. An Ohio Republican Representative, a business owner, said he never realized the State asks if you made out of State purchases that you owed taxes on. So, if I live in El Paso and work in Las Cruces, or the opposite, who do I pay taxes to? It matters because each State has different taxes and no matter what the laws say, one State gets cheated; Or I get cheated. Also the SCOTUS has jurisdiction because it is interstate commerce. It is actually something they should be ruling on. Finally you sound like I am a tax the rich liberal which I am not. I believe sales tax is the way to raise revenue. I hate progressive taxes. Not that NM will cut any other taxes unfortunately. They will just spend more.

        1. Congress, not the courts, “walks point” on interstate commerce. That’s one of several reasons why Wayfair was such a lousy decision. Basically, since Bellas Hess and Quill, Congress has agreed, so to speak, with the High Court’s definition of physical nexus. Many bills have been drafted to do away with it, but none have been successful. Deciding not to decide is still a decision.

          So Kennedy and four other justices stepped in, and imposed their will on the legislative branch, based on some very misguided notions about “fairness” and “lost revenue.” (Read Roberts’s dissent, in which he thoroughly demolishes the majority’s shibboleths.)

          Hopefully, this mess will be remedied with passage of the No Regulation Without Representation Act. (Or something like it.)

          I doubt we have many differences regarding taxation in general. Consumption taxes are greatly preferable to income taxes, both nationally and in New Mexico. But Wayfair was a serious mistake. I encourage you to read the decision, as well as Roberts’s dissent.

          1. Mr. Muska: I see that this is something the Congress has been kicking down the road for years. I do not see anyone, including Roberts, liking the Quill opinion. My opinion still is that States are being denied revenue because people do not pay sales tax or GRT when they purchase online. You know that NMGRT is collected by the seller and remitted to the State. So we make business in NM, in essence, collect the tax. On line retailers are hurting Bricks and Mortar and Main Street. I favor Main Street. You are correct however in that Congress should act and settle the mess. I much prefer laws instead of judges legislating from the bench.

          2. 1) I liked the Quill opinion. It made the most logical and Constitutional sense. Remote sellers in one state should not be coerced into collecting taxes for another state. It is simple federalism.

            2) As a supporter of small government I don’t really care how much money the state has. 90% of what the government does is either wasteful or unnecessary. Giving them more money is the last thing we need to do. The State of New Mexico is exhibit A.

  2. We are mostly in agreement except for one glaring item. I would say only 85% of what government does is necessary but I will not quibble about 5%. Thanks for the good debate all. Paul.

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