Forget the malls. One-quarter of all retail sales in the United States now are made by mail or phone orders to catalogue merchants or television sales representatives, according to North Dakota Gov. George A. Sinner.
Sinner and his colleagues in state government across the country care a lot about that booming sector of the retail market, because it pretty much evades the sales tax that is a major source of state revenue. By some estimates, the states are losing about $2.5 billion a year that they would collect if their residents bought from in-state stores instead of ordering from out-of-state marketers.
It's not surprising that the states are anxious to get their hands on that money by extending their taxation powers to merchandise ordered by their residents by mail or phone. In fact, 31 of the 45 states with sales taxes have in the past five years passed laws taxing such sales.
But only 17 states are actively trying to collect the taxes. Attempts to enforce the statutes run smack into a 1967 U.S. Supreme Court decision that threw out such taxation efforts as unauthorized by Congress. Bills now in the congressional hopper would give that authorization.
Some states' statutes say merely that once federal lawmakers give their approval to collecting sales taxes from out-of-state vendors, they will begin to do so immediately. But many state officials see no reason to wait. They insist that the 23-year-old ruling is no longer good law, and that it should simply be ignored.
That's the approach being taken by North Dakota, one of the states leading the fight to collect sales tax on mail orders. The economic landscape has changed so much in the past two decades, Sinner argues, that mail-order marketing can no longer be looked at as something peripheral to the main way customers purchase goods.
It's hard to convince a lower court judge to ignore high court precedent, however. North Dakota's first attempt to wage that argument in court was short-circuited when the target, Spiegel Inc., settled before the case got to trial.
The state then brought a similar suit against Quill Corp., which sells office furniture by mail. Last month the trial court rejected North Dakota's pitch; the state is likely to appeal, says Tax Commissioner Heidi Heitkamp.
California leads a second group of states that are taking a less confrontational position than North Dakota: Their tax collectors are not rejecting the 1967 Supreme Court ruling, but are claiming that some catalogue merchants have so much presence in their jurisdictions that they are no longer out-of-staters but local businesses that can be taxed like any other.
These states point to the catalogue companies' use of in-state banking services and of state debt collection laws as evidence that they are operating within the state's borders.
The Ohio statute lists a number of other ways a mail-order company can be connected enough to the state to come under its laws, including offering Ohio residents a toll-free telephone number for orders or advertising on local broadcast outlets or newspapers or in national publications that will have a substantial circulation in Ohio.
Washington state says a mail-order company comes under its jurisdiction if it ships $500,000 worth of goods a year to local residents. New York uses a $300,000 floor, and Minnesota claims the right to tax any company shipping in more than $100,000 worth of merchandise.
That kind of varying criterion may, state officials suggest, eventually lead companies that sell by mail to join with local governments in lobbying Congress for a law authorizing state sales taxes on merchandise bought out-of-state. The reasoning: The companies would rather work with a single national rule than a maze of different state standards.
A lot of companies are, in fact, "voluntarily" collecting the sales tax for states now and would be in a better competitive position if a federal law forced their competitors to charge the tax as well.
The Federation of Tax Administrators has put together teams of auditors from states in the Northeast who have called on a total of almost 10,000 companies -- primarily in California and around the Capital Beltway -- and gotten about 10 percent of them to agree to collect sales tax from out-of-state customers.
Such agreements help corporate books look better. California, getting tough with about 180 big mail-order retailers, simply sent out bills for tax on an arbitrary 10 percent of their total U.S. sales, figuring that the Golden State probably accounted for roughly that slice of the pie. Accounting rules require that the bills be carried as a liability.
Getting voluntary agreements, however, postpones the court test that eventually will define just what legal authority states have in this area. And that's not a good thing, warns Joe B. Huddleston, tax commissioner of Tennessee. He told a meeting of state tax officials last month, "I'm going to be a little heretical. It's more important that states know what the law is than to collect from L.L. Bean."
Daniel B. Moskowitz is a Washington editor for Business Week newsletters.