The Illusive Internet Sales Tax

by Tim Larason  

Oklahoma reportedly loses $200 million of uncollected sales tax revenue on internet and mail order purchases by Oklahoma residents from out of state vendors.  If collected, this would have been a big help in resolving the state revenue crisis this year which began with a$1.3 billion deficit.

The problem is the Quill US Supreme Court decision of 1992 which specified states had no power to force sellers to collect and remit sales tax if they had no physical presence within its borders.  To collect was considered a burden on "interstate commerce" not allowed by the US Constitution absent Congressional approval.  Congress has failed to act after numerous attempts over several years.  For some in Congress it appears similar to a tax increase although it affects only tax already owed.  Others claim this would burden sellers to keep track of tax for all 50 states, but online systems are now available to deal with this problem.  The Oklahoma delegation has not taken an interest in helping Oklahoma collect.

Justice Kennedy, often a swing vote on the Supreme Court, recently signaled he thought it is time for the Supremes to abandon the Quill decision but no case is presently in line for immediate action.

States have attempted self-help by various measures.  Auditors visit larger businesses and require them to pay over.  Oklahoma now provides a place on individual tax returns for taxpayers to voluntarily remit what they owe.  Not much is being collected from individuals.  An additional appropriation was made this year to the Tax Commission earmarked for increased enforcement of sales tax, income tax and gross production tax.

One approach recently upheld required sellers not collecting Colorado sales tax to issue "1099" type forms at the end of each year, one to the customers with the amount of uncollected tax on theirpurchases, and a copy to the state.  One newspaper quoted an internetseller as saying it would be easier to just collect the tax.  After oncegoing to the Supreme Court, this approach was held valid by the Tenth CircuitCourt of Appeals in February 2016.  Oklahoma is within jurisdiction ofthat court.  Appeals and rehearings are still possible but it is likely tobecome final soon.

Oklahoma considered this approach and adopted itonly half way.  The non-collecting sellers are required to give theircustomers a statement at the end of the year, but no copy to the state. Impossible to effectively enforce.

So another year goes by before Oklahoma will see that $200 million of uncollected revenue.

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3 comments (Add your own)

1. Jill Spangler wrote:
Really helpful information, Tim. Not terribly surprising that the Oklahoma legislature passed another ineffective and illegal bill.

Tue, June 7, 2016 @ 10:07 PM

2. anne larason schneider wrote:
very interesting....arizona could take note of this too !

Wed, June 8, 2016 @ 10:27 AM

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