Supreme Court online sales tax ruling unlikely to change Idaho law, legislator says

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The Supreme Court will rule in June on a case that could require more retailers to collect sales taxes on online sales. File photo.

A case before the U.S. Supreme Court could change the way online retailers are required to collect sales tax. But it’s unlikely to affect a bill passed by the Idaho Legislature this session, according to the legislator who carried the bill.

The Supreme Court heard arguments on April 17 in South Dakota v. Wayfair, where the state argued that the existing system – requiring a physical nexus for an online vendor to have to collect sales tax, based on the 1992 Quill v. North Dakota decision – is unfair to existing brick-and-mortar businesses, according to the Associated Press. Some justices were concerned about changing that precedent, the AP said.

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Lance Clow

The Idaho Legislature passed a bill earlier this year, signed into law by Gov. C.L. “Butch” Otter on March 21, requiring out-of-state vendors to collect sales tax on online sales in some additional cases.  The bill was sponsored by Rep. Lance Clow, R-Twin Falls. Cow doesn’t think the Supreme Court’s decision, expected in June, will change much about the bill, scheduled to take effect July 1.

The Supreme Court has three options: Agree with South Dakota that the economic nexus argument is appropriate, agree with the original Quill decision that a physical presence is required, or some combination, Clow said. But he thought the second option was unlikely because the Supreme Court has already broadened the definition of when states have authority over out-of-state online retailers, he said. “I don’t believe they’re just going to say, ‘OK, Quill, you’re fine,’ because the Supreme Court has already been ruling that ‘Quill, we’ve got problems,’” he said.

Congress has missed the opportunity to write laws on the issue, Clow said. “It’s up to the states to make that determination,” he said. “I feel comfortable that the bill we passed this last session is in good standing. If they [the Supreme Court] broaden the ability of states to respond, maybe next year we’ll come back and change our law to a bigger net-out to bring in more retailers.”

Idaho House passes online sales tax collection bill

The Idaho Statehouse
The Idaho Statehouse. The state House has voted in support of a bill that would direct online vendors to collect sales on online sales to Idaho residents. File photo.

Some vendors outside Idaho are more likely to need to collect sales taxes on online purchases made in Idaho, after a House of Representatives vote.

Bill H578, sponsored by Rep. Lance Clow, R-Twin Falls, directs some online vendors – those which do not have a presence in the state but which have at least $10,000 in sales in Idaho, as well as an in-state affiliate who helps with sales — to collect sales tax on online sales made to Idaho residents. Previously, only vendors with a presence in the state, such as an office, needed to collect sales tax on online purchases, based on a 1992 Supreme Court decision, Quill Corp. vs. North Dakota.

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Mike Moyle

“I’m the guy who helped stall this bill for years, but things have changed,” said Majority Leader Mike Moyle, R-Star. “This helps honest people stay honest.”

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Lance Clow

That’s because the existing law doesn’t let Idaho residents who shop online off the hook. They are supposed to report online sales on their Idaho income tax form and pay a use tax. But in practice that rarely happens, if only because it requires saving online receipts for an entire year. “The tax is due,” said Rep. Jason Monks, R-Meridian. “We’re just simplifying how it’s collected,”

A number of Idaho brick-and-mortar retailers supported the bill because otherwise they said they operated at a disadvantage to online retailers.

“If you’re going to tax businesses for performing retail sales, you have to tax all businesses,” said Gaylon Hughes, owner of Wilson’s RV Repair, in Boise. “Otherwise you’re picking winners and losers.” His company sells parts for recreational vehicles, some of them priced at $800 to $900, and his customers tell him they will order them online so they can save $40 to $50 on sales tax, he said.  “In our industry, there’s a lot of smaller retailers out there who are setting up businesses in their house and selling parts, and they have a built-in price advantage.”

The Boise Metro Chamber and the Idaho Chamber Alliance support the bill, said Ray Stark, senior vice president of the Boise Metro Chamber.

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Gaylon Hughes

Clow estimated that the state is losing $22 million to $37 million annually from unpaid sales taxes on online purchases. At the same time, bill sponsors hedged their bets by recommending that no appropriations in fiscal 2018 should rely on this anticipated revenue. The Idaho State Tax Commission doesn’t have information on how much online tax is unpaid,  but more than 11,500 taxpayers reported use tax of more than $850,000 on their 2016 income tax returns, said Renee Eymann, public information officer.

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Ron Nate

The bill passed with a vote of 46-21 after a lengthy debate. Opponents Reps. Ron Nate, R-Rexburg, and Vito Barbieri, R-Dalton Gardens, suggested the bill violated the law by charging an interstate tariff and warned Idaho could now increase taxes on out-of-state purchases.

Others, such as Reps. Priscilla Giddings, R-White Bird, and Greg Chaney, R-Caldwell, recommended the Legislature wait until next year to pass the bill, because the Supreme Court has said it will rule in June on a South Dakota case widely expected to overturn Quill. But Clow and Moyle said they were confident that the Supreme Court ruling wouldn’t affect H578.

The bill will now move to the Senate side of the Capitol and, if approved there, to Gov. C. L. “Butch” Otter for his signature.