Capitol to Capitol is NCSL's state-federal newsletter.
“Our businesses simply can’t survive without someone stepping up to make the marketplace fair and even again. Since Congress has once again failed, it falls to us to fill that void.”
—NCSL President Senator Deb Peters (R-S.D.) in a February 2016 interview with the Wall Street Journal
The U.S. Supreme Court (SCOTUS) ruled in the 1992 case of Quill v. North Dakota that consumers owe applicable sales taxes on purchases made from out-of-state businesses, but the ruling did not require out-of-state sellers to collect and remit those taxes. Instead, the court urged Congress to pass legislation to fix the problem, believing that Congress was the more appropriate branch of government to address the issue. However, even though the advent and tremendous growth of electronic commerce in the 26 years since Quill has made the problem much worse, Congress has yet to act. This failure by Congress is why the Supreme Court last Friday agreed to hear the South Dakota v. Wayfair case, most likely later this spring, which could lead the court to overturn Quill, thus granting states the authority to require remote businesses to collect and remit sales taxes on transactions made by a state’s residents.
Martin Luther King’s birth name was Michael Luther King, Jr. His father, whose given name was Martin King, chose the name Martin Luther for himself and for his five-year old son after he visited the region of eastern Germany where Martin Luther, the Father of the Reformation, was born, lived and worked.
The inability to collect the legally owed sales taxes on online purchases is threatening the viability of the sales tax as a revenue source for states. A joint study by NCSL and the International Council of Shopping Centers (ICSC) estimated that in 2017, states forewent $26 billion in uncollected sales and use taxes. This problem is especially acute for states that rely heavily on consumption taxes for revenue, such as South Dakota, which does not levy personal or corporate income taxes.
In lieu of congressional inaction, in November 2015, the NCSL Executive Committee Task Force on State and Local Taxation met to discuss options states could take to require out-of-state businesses to collect and remit applicable sales taxes on purchases made by in-state residents. At the meeting, Senator Peters said that, “If we are going to do it, we need to have a bill ready Jan. 1 and be ready to rock 'n' roll on it because committee hearings start the second week in January." And, after Congress failed to act that December, Peters and the South Dakota Legislature were indeed ready to act.
On Jan. 27, 2016, Peters introduced legislation, S.B. 106 (2016), which required remote sellers that have 1) more than $100,000 of annual sales in South Dakota, or 2) engage in 200 or more separate transactions with South Dakota customers, to collect and remit the state’s sales tax. Given that the legislation directly contradicted the SCOTUS Quill ruling, the legislation was clearly written to challenge that precedent in court. After Governor Dennis Daugaard (R) signed the legislation into law on March 29, a group of catalog marketers and e-commerce retailers brought suit and challenged the constitutionality of the law in court. In fewer than two years since, the South Dakota case has quickly moved through the court system and remote sales tax collection authority will again be heard by the Supreme Court.
The $26 Billion-Dollar Question: Will Congress pass legislation to fix the remote sales tax collection problem before the Supreme Court rules on the South Dakota case? This is hard to determine, especially given the current political climate on Capitol Hill. If Congress acts soon, the case before the court could become moot. However, absent congressional action, the Supreme Court could be in position to reverse its ruling in Quill.
“Given these changes in technology and consumer sophistication, it is unwise to delay any longer a reconsideration of the Court’s holding in Quill. A case questionable even when decided, Quill now harms states to a degree far greater than could have been anticipated earlier.”
—Justice Anthony Kennedy, DMA v. Brohl, March 3, 2015
NCSL Contacts: Max Behlke, Jake Lestock
The government is currently funded through Friday, Jan. 19, which means that if Congress does not pass another spending bill before this weekend, the government will shut down. GOP leaders on Capitol Hill are hoping to pass another short-term funding measure, known as a continuing resolution (CR), which would be the fourth such measure Congress has passed since September. However, this time, the votes may even harder to corral.
According to Internet Retailer, internet sales will account for 17 percent of all retail sales by 2022, up from a projected 12.9 percent in 2017. Approximately 16 million Americans work in the retail sector, which represents 10 percent of the nation’s working population. The online sales growth contributed to a record 7,000 brick-and-mortar store closings in 2017, which in turn contributed to a loss of 36,000 jobs in the sector.
Republican defense hawks have expressed reservations about voting for another CR without a long-term spending deal for the Pentagon. Lawmakers from storm-ravaged states from both parties are pushing for more federal aid. But those issues aside, whether or not the government stays open may ultimately come down to the lightning-rod issue of immigration. And on the Democratic side, lawmakers don’t want to help GOP leaders keep the government open without an agreement that ensures protections for certain young immigrants brought to the U.S. illegally as children. A bipartisan group of lawmakers met with President Donald Trump last week to try to find a solution to immigration, specifically the Deferred Action for Childhood Arrivals (DACA) program, implemented under the Obama administration. During the meeting, Republicans expressed their concerns for an immigration compromise, including addressing “chain-migration” and funding for a wall along the U.S.-Mexico border.
Expect conversations on these issues and a funding deal to continue throughout the week and a final deal not to materialize until the last minute, if one materializes at all.
Trump issued two executive orders on Jan. 8: The first executive order, directs the Department of Interior to submit draft model terms and conditions to advance the streamlined deployment of rural broadband. It also outlines the executive branch policy to support accelerated deployment and adoption of affordable, reliable, high-speed broadband connectivity in rural America including homes, farms, small businesses, manufacturing and production sites, tribal communities, transportation systems and healthcare and education facilities.
The second executive order states the administration policy to reduce barriers to capital investment, remove obstacles to broadband services and more efficiently employ government resources. It requires the General Services Administration (GSA) to develop a common form and master contract for wireless facility siting on buildings and other property owned by the federal government. It requires the GSA to review and revise as needed the common form to further streamline and expedite applications to locate broadband facilities on federal real property. It also establishes reporting requirements.
NCSL Contact: Danielle Dean
On Jan. 4, the Federal Communications Commission (FCC) released the final report and order reinstating the Title I information service classification of broadband internet access service. Section 194 of the order pre-empts state or local measures that would effectively impose “public utility-type” regulations including common-carriage requirements similar to Title II regulations. The section also recognizes the traditional role of state policing on matters such as fraud, taxation and general commercial dealings and does not preempt state responsibility for designating eligible telecommunications carriers, jurisdiction over poles, ducts, conduits and rights-of-way or universal service policies.
Read the full FCC order. In 2018, at least 14 Bills in nine states have been introduced specifically addressing net neutrality. Additionally, there has been at least four Resolutions from two states—New Jersey and Illinois— and the District of Columbia.
The Federal Communications Commission (FCC) voted last month to repeal the 2015 Title II protection for net neutrality. Net neutrality rules required internet service providers (ISPs) to treat all web traffic equally. This means that ISPs could not block users from certain websites, artificially slow speeds to specific websites, or require websites to pay to have their internet speeds prioritized. Since then, several states have stepped in to try to restore net neutrality rules. Meanwhile, members of Congress are also taking action to undo the FCC’s repeal of net neutrality rules.
Martin Luther King’s favorite television show was “Star Trek” and it was the only show he allowed his children to stay up late to watch. King believed the show was one of the only examples of equality on American television. This was intentional, as the show’s creator, Gene Roddenberry, envisioned a better future in which the contemporary strife of the times had been overcome.
A bipartisan effort in the U.S. Senate has emerged to invoke the Congressional Review Act (CRA) to void the FCC’s action of repealing net neutrality rules. The CRA resolution now has the support of more than 40 members, including Senator Susan Collins (R-Maine), which means it has enough support to force a vote on the Senate floor. Congress has 60 legislative days under the CRA to reverse an action taken by a federal agency. Senator Ed Markey (D-Mass.), who introduced the CRA resolution of disapproval, said a vote could come by late spring or early summer. If the CRA resolution passes the Senate, it will still need to be approved by the House and finally signed by Trump, which would be much more difficult to achieve.
Read the Jan. 8, 2018, Capitol-to-Capitol.
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NCSL's Washington staff advocate Congress, the White House, and federal agencies on behalf of state legislatures in accord with the policy directives and resolutions that are recommended by the NCSL Standing Committees and adopted by the full conference at the annual NCSL Legislative Summit Business Meeting. As a result of the advocacy that is guided by these policies positions, NCSL is recognized as a formidable lobbying force in state-federal relations.