COVID-19

A 2018 Supreme Court tax decision is helping state budgets during the pandemic

Marielle Segarra Sep 3, 2020
Heard on: Marketplace
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States are collecting substantial online sales tax revenue while some other forms of commerce shrink. Mapodile/Getty Images
COVID-19

A 2018 Supreme Court tax decision is helping state budgets during the pandemic

Marielle Segarra Sep 3, 2020
States are collecting substantial online sales tax revenue while some other forms of commerce shrink. Mapodile/Getty Images
HTML EMBED:
COPY

You were always supposed to pay taxes on the stuff you bought online. But until recently, states could not require online retailers to collect those taxes.

“Individuals who purchased goods were expected to keep track of the untaxed items they purchased and remit to the state,” said Jared Walczak, vice president of state projects at the Tax Foundation.

As you might imagine, “compliance was incredibly low,” he said. “Barely anyone did it.”

States were losing hundreds of millions of dollars in taxes a year.

Then came the Supreme Court’s 2018 ruling in the case South Dakota v. Wayfair, Inc. The court ruled that states could pass legislation requiring online retailers to collect taxes on their behalf.

Turns out, that came at a good time.

“With the pandemic and so many people staying home, that has caused a significant increase in the amount of purchases that are online,” said Texas Comptroller Glenn Hegar.

People are buying laptops and bike shorts and patio furniture online, and before the Supreme Court decision, Texas would not have collected taxes on most of those purchases.

The state estimated it would bring in an additional $500 million a year because of this ruling. It’s actually collecting double that.

Meanwhile, in Kansas, tax revenue is up by 9% compared to this time last year, in part because of this decision.

“I think it’s actually helping the states quite a bit,” said Lucy Dadayan, senior research associate at the Urban Institute. “Every single state that I have been looking at has been reporting substantial increase in sales tax revenues from online sales.”

She said a lot of states are still seeing their revenue drop overall.

In Texas, it’s down by 3.4% this fiscal year.

COVID-19 Economy FAQs

Are people still waiting for unemployment payments?

Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.

Are we going to see another wave of grocery store shortages?

Well, public health officials are warning that we could see a second wave of the virus before the end of the year. And this time retailers want to be prepared if there’s high demand for certain products. But they can’t rely totally on predictive modeling. People’s shopping habits have ebbed and flowed depending on the state of COVID-19 cases or lockdowns. So, grocers are going to have to trust their guts.

What’s going to happen to retailers, especially with the holiday shopping season approaching?

A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.

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