Politics & Government

Online shopping may eventually cost more. But it could help Kansas, Wichita

More and more shoppers have chosen to shop online in recent years.
More and more shoppers have chosen to shop online in recent years. AP

The days of ordering online without paying sales tax may soon draw to a close in the wake of a U.S. Supreme Court decision, but it’s unlikely shoppers will see the effects immediately.

Kansas officials see Thursday's ruling overturning Quill Corp. v. North Dakota as an opportunity to raise more money — and perhaps eventually reduce the sales tax on food.

By a 5-4 vote, the justices overturned past rulings that had shielded internet sellers from collecting taxes from customers in states where they had no stores, warehouses or other physical presence.

Instead the justices – addressing an issue that Congress has for years failed to resolve – brought internet commerce into line with the taxing rules that apply to mall shops, big box stores and other traditional retailers.

Justice Anthony M. Kennedy, speaking for the court, said it was not fair to allow remote sellers to escape the duty to collect and remit sales taxes.

In dissent, Chief Justice John G. Roberts Jr. said the court should have waited for Congress to decide the issue. He said Congress has the power to regulate interstate commerce, and changing the tax rules state by state has “the potential to disrupt the development of such a critical segment of the economy.”

Some see the decision as good news for brick-and-mortar businesses that have complained they’re at a competitive disadvantage because many online stores don’t collect sales tax.

For Kansas shoppers, the price of online goods could eventually rise by 6.5 percent or more — the amount of the state sales tax. But some consumers may not notice much of a difference because many retailers, like Amazon, already collect taxes.

"I don't know if it'll affect my shopping that much," said Stephen Cummins, a teacher in the Wichita school district. He said about 25 percent of his shopping is online on sites like Amazon.

Linda Halley, a reservationist at the Wichita Marriott, said she occasionally she buys books online. She said any new taxes wouldn’t affect her online shopping habits too much.

“As long as the store or company tells me up front what I’m paying — shipping, handling, taxes or whatever — I’m okay with it,” Halley said.

Kansas would collect an additional $113 million to $170 million a year, according to federal estimates. Lawmakers said the revenue could be used to pay for government programs or lower tax rates, including perhaps the sales tax on food.

The Kansas Legislature would have to pass a bill to take advantage of the ruling and begin collections from online sales, leading lawmakers on tax issues said. The Legislature isn’t expected to meet again until January.

Rep. Kristey Williams, R-Augusta, said the Kansas Department of Revenue had already reached out to some lawmakers on Thursday about how to move forward. A bill that would have paved the way for Kansas to begin collecting sales tax on online sales advanced this year, but didn’t pass.

“We’re hoping that we can take a look at the ruling, find out the measure we were going to pass, what we can do to adapt that so Kansas can quickly start to implement the internet sales tax,” Williams said.

In practical terms, Kansas may not begin collecting from online sales for another year, according to Rep. Steven Johnson, an Assaria Republican who chairs the House tax committee. After lawmakers return in January, it may take up to three months to pass legislation and then additional time for the state to implement it, he indicated.

What to do with the additional revenue could also complicate efforts to pass a bill.

Kansas government is in better financial shape than it was a year ago. Lawmakers last year rolled back much of the income tax cuts put into place in 2012 under then-Gov. Sam Brownback. Kansas has collected $107 million more than officials expected in the fiscal year that ends June 30.

Still, the state faces significant costs in the coming years. Chief among them: a plan to ramp up school funding each year so that at the end of five years, Kansas will spend $500 million more annually on education. The state Supreme Court will rule this month on whether the plan contains enough money.

Johnson said he would be surprised if there aren’t proposals to tie legislation to efforts to reduce tax rates. Both Republican and Democratic lawmakers have talked about reducing the sales tax on food for years. Kansas taxes food at the same rate – 6.5 percent – as any other product, something that many other states do not.

Williams said she would like to see a balanced approach, perhaps devoting half the additional revenue to funding the state’s pension program or reducing state debt.

“The other half, I would love to see the food sales tax reduced,” Williams said.

More money for cities

For cities and counties, Thursday’s ruling holds the possibility of shoring up revenue collections over the long run.

It's too soon to know how much impact the ruling will have on Wichita’s budget, Mayor Jeff Longwell said, but "it certainly could close some budget gaps, based on what we’ve seen in terms of dollars we collect for a wide variety of services."

The city faces a projected deficit of $1.7 million in 2019, and the deficit grows steadily until it reaches $5.1 million in 2022.

"We haven't had those conversations yet" as to what the ruling will mean for the city, Longwell said.

He's heard often from owners of businesses that have suffered financially because online transactions did not collect sales tax, he said.

While some shoppers prefer the convenience of buying online so the products are sent directly to their door, Longwell said, he's heard many others say they buy online because they save money on sales tax.

"I'm glad to see the Supreme Court say 'We want to be fair to all businesses,'" he said.

Erik Sartorius, director of the Kansas League of Municipalities, said the court’s decision will help local businesses remain competitive. Commerce has the same impact on public infrastructure whether it begins in the state or outside of it, he said, adding the burden of shouldering those costs should not rest solely on local businesses.

“Cities across Kansas want to have thriving local businesses,” Sartorius said.

Uncertainty for businesses

Some fear the ruling will harm small businesses, however.

The American Legislative Exchange Council said the decision would usher in a “unheralded period” in interstate commerce, where small businesses would be subject to more than 12,000 taxing jurisdictions. Jonathan Hauenschild, who authored ALEC's brief for the Supreme Court on the topic, in a statement predicted many businesses will likely limit their reach rather than face audits from states like California, Illinois or New York.

“They will face audits and compliance costs very few can comprehend,” Hauenschild said.

Carley Zuercher and her mother Barb Doehring own CZ Invitations, a Wichita business that creates high-end wedding invitations for customers across the country.

Zuercher estimated more than 90 percent of their business is out of state.

“I don’t think it’s going to affect the people buying from us as much, I think it’s mostly going to affect how much more work I have to do on my end.”

“I think it’s a little too soon to say how much work it’ll be for me. It depends on what states get on board and the extent of what they decide. It’s going to be a lot more hours doing sales tax. ... I don’t yet know the extent of that work, but I know that it’s going to be a pain in the butt.”

Which businesses have to collect sales taxes online remains an open question. Collecting sales tax in multiple states can require businesses to buy expensive software.

David Campbell, CEO of TaxCloud, one of the companies that manufactures tax compliance software, said unless Congress creates a uniform threshold at which small retailers would be exempt, each state will be free to set its own ceiling.

“What’s important around that is creating something that doesn’t overly burden a relatively small business that does some online sales,” Johnson said.

Contributing: the Los Angeles Times and the Associated Press