Larry Davidson is president of Davidsons, a clothing store for men in Roanoke, Va. He has served as president and board member of Downtown Roanoke Inc. and the local Merchants Association.
Before modern e-commerce even existed, the Supreme Court issued a ruling that shaped our digital economy. In 1992, the court created a loophole that has allowed online-only retailers to avoid collecting sales taxes while still requiring local businesses to do so. Through this, the court essentially created a corporate welfare program for online-only retailers — some of which are now digital giants — that has stood for a quarter-century.
This precedent has had profoundly negative consequences on American businesses, acutely felt by local merchants during the holiday shopping season. For years, retailers such as myself have urged Congress to close the online loophole, and every year we've received lip service but seen no action. This year was more of the same, if not worse, as Congress overhauled the entire federal tax code yet did nothing to address the concerns of local retailers who have been treated unfairly as the result of this special treatment in the law.
But retailers now have another avenue for reform: asking the Supreme Court to yet again intervene after years of congressional neglect. The state of South Dakota has petitioned the court to take up a case that would give the court a chance to overturn the 1992 precedent. I'm hopeful the justices will do just that and bring our tax system into the 21st century.
In 1992, the Supreme Court ruled that North Dakota had no right to collect sales taxes from an office supply company that had no physical presence in the state, even though the company was selling its products to customers in the state through a computer program. Ever since, companies that do not have a physical presence in states — such as a retail outlet or distribution facility — have essentially been able to sell their products to people in those states without paying taxes.
The justices understood their ruling might carry damaging and unintended consequences, which is why they asked Congress to update federal law to better regulate interstate commerce and restore a sense of basic fairness. Sadly, the court overestimated the will of Congress to act.
In the meantime, this loophole has done significant harm to Main Street retailers, as well as state and local budgets. In the decades since that decision, thousands of retail storefronts have disappeared while states and municipalities have lost billions in uncollected sales tax revenue — at least $23 billion annually.
Justice Anthony M. Kennedy, in the 2015 case Direct Marketing Association v. Brohl, essentially suggested states should force the issue by filing a case that would allow the Supreme Court to reconsider its stance on our tax system. That's why South Dakota has quickly pushed their case up to the highest court.
By revisiting its original decision and striking down its 1992 ruling, the court could allow states to pass common-sense laws mirroring the statute passed in South Dakota that require large online sellers to comply with the same sales tax laws as local businesses. If it chooses, Congress could also decide to pass legislation in the wake of a court decision creating a national framework. But waiting for Congress to act proactively is a fool's errand.
The digital world has changed drastically over the past quarter-century. It is long past time for our laws to catch up. Brick-and-mortar businesses continue to be the heart of America's economy, creating 64 percent of net private-sector jobs. These businesses aren't asking for special treatment, just equal treatment, and our only realistic shot is for the court to revisit and strike down Quill. Small retailers across the country are desperate for the court to rectify what Congress has left to fester.