Online business could face level playing field
Because of a U.S. Supreme Court ruling on June 21, it’s too early to predict the wording of the Use Tax line on the 2018 Pennsylvania state income tax form and whether, beyond this year, the line will have to continue to exist.
For 2017, the line — Line 25 — said simply, “Use Tax. Due on internet, mail order or out-of-state purchases. See instructions.”
The reality is that, in practice, many consumers who bought items in one of those ways last year — and in prior years that the tax existed — treated the line as if they only made purchases at brick-and-mortar stores in the commonwealth.
Many taxpayers skimped on honesty by indicating no use-tax obligation — or very little — when stacked up against their actual online, mail order or out-of-state purchases.
Despite the line’s presence on the tax form, there really was no way for the state to ascertain whether they were being partially or completely honest, or totally dishonest.
The fact is few taxpayers take the time to keep a running account of the purchases in question to determine how much state sales tax would be due on their purchases — how much tax they would have paid if they had made their purchases in-state.
And the use tax hasn’t just been a joke in the Keystone State; most other states have enjoyed the same experience.
But June 21 turned out to be a great day for brick-and-mortar businesses.
The nation’s highest court, in a 5-4 decision, ruled that the states can require internet retailers to collect sales taxes from their residents at the time of purchases.
The ruling in the case of South Dakota v. Wayfair Inc. overturned the 1992 court ruling in Quill Corp. v. North Dakota that said that the Constitution bars states from requiring businesses to collect sales tax unless they have a substantial connection to the state.
What the new ruling means is that, if the states act as expected in response to that new court edict, consumers could be required to pay taxes on products bought online — a price more in line with what they’d pay at brick-and-mortar merchants near home.
In many cases, that would be an incentive to support the local merchants who employ local residents, pay state and local taxes and do many other good things in their communities.
There is a place for the online merchants, but it ought to be on a level playing field.
The leveling of the playing field is what the June 21 ruling seeks to accomplish.
Pennsylvania, which, like the state of Washington during the past year, enacted a law requiring internet retailers to collect taxes on third-party sales, now must ensure that it receives the full benefit of the court ruling.
The Legislature can revisit the newly passed 2018-19 state budget to make spending adjustments based on the additional sales tax revenue that the commonwealth is destined to realize, although many taxpayers, responding to human nature, would prefer to see a downward adjustment in their state income tax obligation instead.
Regardless, the time may come when Line 25 of PA-40 correctly can be deemed no longer necessary.