Editorial: Support online sales tax

Kansas lawmakers should support a bill that would expand sales tax collections on online purchases made in Kansas.

House Bill 2756 essentially expands the definition of who qualifies as having a corporate presence in Kansas and thus must collect and remit sales taxes on online sales.

Such a designation is necessary to comply with a 1992 Supreme Court ruling that sales tax can only be assessed on companies that have a physical presence or “nexus” in the state. That 1992 case resulted when North Dakota’s tax commissioner tried to collect sales taxes from Quill Corp., a national mail-order company that sold office equipment throughout the United States. The state argued it should be able to collect the tax on items purchased in the state. But the court ruled that would interfere with interstate commerce and said the state could tax only sales from companies with a physical presence in the state.

As online sales have grown — largely at the expense of brick-and-mortar retailers that do collect and remit sales taxes — the 1992 ruling has created a significant problem for state sales taxes. National estimates are that states missed out on $26 billion in sales taxes that weren’t collected on online sales.

The work-around states are implementing is a nexus law, which expands “presence” to include retailers who, even if they don’t have a store in the state, have affiliates who sell the retailers’ products online or in a store or who refer online visitors to the retailer.

HB 2756 would require retailers with more than $50,000 in annual sales in Kansas to collect Kansas sales taxes if the retailer has marketplace facilitators or referrers based in Kansas. Marketplace facilitators sell the retailer’s products online or in a store. Referrers list the retailer’s products for sale and collect commission on sales.

Estimates are that, if approved, HB 2756 would add between $113 million and $170 million annually to the state’s coffers. The bill would take effect Jan. 1, 2019.

It’s unfair to brick and mortar stores — who provide jobs, property taxes and charitable contributions that are key to the communities they are in — to require them to charge more for goods and services because they are required to collect and remit sales taxes when their online competitors aren’t. And Kansas can ill afford to overlook new sources of revenue as it seeks to comply with a court order to increase funding for public schools.

Kansas Attorney General Derek Schmidt has joined other states challenging the Supreme Court’s 25-year-old ruling in the Quill case. A reversal in that case could nullify the need for HB 2756. Still, approving the bill this session is the right move to make in the event the court challenge falters.