By State Sen. Marlon Kimpson | According to data collected by Adobe, this year’s cyber Monday U.S. online orders totaled $3.07 billion, an historic record. The sales total marks a 16 percent increase from Cyber Monday last year.
South Carolinians should be mindful that buying from online national retailers that do not collect South Carolina sales taxes not only puts our local retailers at a competitive disadvantage but robs our state from necessary resources to fund government. This includes paying for necessary road, highway and bridge repairs and providing adequate funding for our public schools.
In December of last year, I filed Senate Bill 170, which passed the South Carolina Senate overwhelming in the spring of 2015 by a vote of 37-4. The bill now resides in the House Ways and Means Committee and I’m optimistic of a hearing on this legislation from Chairman Brian White.
The bill is simple at its core, and is, at the end of the day, about “fairness” for our state’s local “brick and mortar” retailers and the “mom and pops” across “Main Street” South Carolina. Similar in nature to legislation passed in at least 14 other states, including North Carolina and Georgia, it simply requires that “remote sellers” – aka, “Internet” or “e-commerce” retailers – located outside of South Carolina collect and remit sales tax from their South Carolina customers in the same manner that South Carolina based mom and pops already are required to do.
This is first and foremost about fairness. Under current law, an out-of-state retailer that does not collect South Carolina sales tax has a built-in 6 percent to 8 percent price advantage over our state’s very own, often home-grown, local businesses. Why? Because a now archaic 23-year-old United States Supreme Court case known as Quill that held the only way a state can compel collection of sales tax from “out-of-state” retailers is if that retailer has a substantial “physical presence” (aka “nexus”) in the state that is trying to collect the tax.
And while the court has made it clear that the United States Congress can, at any time, pass legislation re-defining what “nexus” means to correctly take into account how drastically and quickly our economy has shifted away from traditional “store fronts” and to online sales, Congress, of course, has consistently failed to take any action. Its failure, motivated by fear of no-tax pledges and deep-pocketed special interests with ties to the rise in e-commerce, continues to cost home-grown retailers and local economies jobs and income.
State and local government revenue continues to suffer along with our home-grown businesses as well. According to our state’s official economic forecasting agency, the S.C. Office of Revenue and Fiscal Affairs, South Carolina’s lack of a strong nexus law, coupled with a do-nothing Congress, costs South Carolina state and local governments an estimated $100 million in lost sales tax revenue annually. This is not fair and is costing our local economies and government revenues. Unless S.170 bill becomes law or until Congress finally acts, the damaging effects to our businesses and ability to provide basic state services are only going to grow.
It is extremely important to point out that this legislation is not a tax increase. That’s because “technically” South Carolina law, as in every other state with a sales tax, requires South Carolina residents who purchase a product from an out-of-state retailer to pay what’s known as a “use tax,” which is basically the same as a sales tax.
But the problem with this is that it puts the burden entirely on the customer to pay the tax, and not the retailer, which is what most customers are familiar with. And on top of that, customers can’t pay the tax at the time of the purchase while it’s fresh on their minds. They must wait and pay this sales tax as part of their income tax at the end of the year! This is simply confusing and very inefficient, both for the customer and the state.
Of the almost $3 billion in state sales tax collected each year, less than $10 million comes in the form of self-reported “use tax.” It is time to recognize that we live in a different world than the times of the 23-year-old Quill decision. The state’s tax laws must be amended to level the competitive playing field for local brick and mortar stores that contribute to our state’s economy and collect the sales taxes already legally due, revenue that the state is being cheated out of.
State Sen. Marlon Kimpson, a Charleston Democrat, is an attorney.
We Can Do Better, South Carolina!