WASHINGTON – The Supreme Court decision allowing e-commerce sales tax collection is credit positive for state and local governments, which no longer need Congress to resolve the issue.

State and local advocacy groups were split Friday on whether Congress will want to weigh in with legislation to regulate this growing sector of the economy, as suggested by Chief Justice John Roberts in his dissenting opinion in the decision announced Thursday.

The immediate focus for governors and state legislatures in the 45 states that levy sales taxes will be on whether they need to revise or otherwise fine tune their laws, officials agreed.

“Congress will do what it will do, but realistically, the election season is well-underway and this Congress already has a full plate,” said NGA General Counsel David Parkhurst. “Next year brings a new Congress and a new class of governors. “

An employee packs a box at the Amazon.com Inc. fulfillment center in Robbinsville, New Jersey, U.S., on Thursday, June 7, 2018.
An Amazon distribution center in New Jersey. A Supreme Court ruling affirmed the right of states to tax online sales from out of state. Bloomberg News

Brian Egan of the National League of Cities said it was “too early to determine whether or not Congress will act.”

“City governments will continue to work with their states to ensure that they have a seat at the table and that collection methods for local sales taxes are included now that these discussions are moving to statehouses,” Egan said. “We are still very much committed to making sure collection methods are streamlined and fair for everyone.”

Emily Brock, director of the federal liaison center for the Government Finance Officers Association, said if anything the decision “adds imperative to establish a nationwide system to streamline and simplify the collection process.”

If Congress does act, GFOA and NLC support two bipartisan bills designed to streamline e-commerce sales tax collection, the Marketplace Fairness Act in the Senate and the Remote Transactions Parity Act in the House.

Both U.S. senators who have led the bipartisan effort in their chamber to enact federal legislation to enable easier sales tax collection in the growing sector of the economy praised Thursday’s high court ruling.

“I am glad the court realized the importance of closing this gaping loophole in our tax law that denied states the right to enforce their own laws and to collect the taxes they were owed,” said Sen. Mike Enzi, R-Wyo. “This issue has always been about fairness and this ruling will help local businesses, states and local governments.”

Sen. Dick Durbin, D-Ill., said the ruling “clears the way for our retailers to compete on a level playing field with internet giants. I’m honored to be part of the bipartisan coalition in Congress that has worked for years to make this change.”

The leading advocate in the House for e-commerce sales tax legislation, Rep. Kristi Noem, R-S.D., has argued that federal legislation is needed regardless of the outcome of the Supreme Court ruling.

But Noem has struggled within her House Republican conference to get the issue on her party leadership’s agenda.

House Judiciary Chairman Bon Goodlatte, R-Va., joined two other House members in a statement criticizing the court’s decision.

Goodlatte and Reps. Anna Eshoo, D-Calif., and Jim Sensenbrenner, R-Wis., described the decision as “a nightmare for American businesses and small online sellers, who will now have to comply with the different tax rates and rules of, and be subject to audits by, over 10,000 taxing jurisdictions across the U.S.”

However, Moody’s Investor’s Service said Friday the ruling is “credit positive for state and local governments, particularly states that rely heavily on sales tax revenues to support their operations.”

Florida collected 77.9% of its general fund revenues from sales tax in 2017 followed by South Dakota at 60.6%, Tennessee at 59.8%, Texas at 55.5% and Washington at 51.5%, according to the National Association of State Budget Officers.

S&P Global Ratings said it did not anticipate any ratings changes as a result of the Supreme Court decision, although it will be beneficial to state and local finances.

“In 2017, e-commerce grew 15.9%, while retail sales without e-commerce grew only 3.4%, continuing a long-term trend,” S&P said. “We expect most states that impose retail sales tax to enact new legislation that require at least large out-of-state online retailers to collect sales tax at time of sale. This should provide a welcome incremental addition to state coffers.”

Moody’s pointed to specific states that it expects to benefit.

“States that are most reliant on sales taxes, including Texas (Aaa stable) and South Dakota, could see sales tax growth of 2.0%-2.5% of total taxes,” Moody’s said. “States that are less reliant on sales taxes, such as New York (Aa1 stable) and Vermont (Aaa stable), will see much smaller gains of 0.5%-1.0% relative to their total tax collections.”

Moody’s said California and other states that already had many large retailers collecting sales taxes under the earlier physical presence standard are expected to “see modest gains of 0.5%-1.0%.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.