High court backs tax ban for sales by mail or phone But says Congress can end exemption

May 27, 1992|By Lyle Denniston | Lyle Denniston,Washington BureauWashington Bureau of The Sun

WASHINGTON -- American consumers who do some of their shopping by catalog or by dialing 800 numbers escaped temporarily an extra $3 billion in taxes yesterday as the Supreme Court rebuffed the pleas of revenue-hungry states.

By a vote of 8-1, the court refused to overrule a quarter-century-old ruling that has barred state taxes on mail order and telemarketing goods -- a $190-billion-a-year industry. At the same time, however, the court did lower that constitutional barrier somewhat, giving Congress the option of taking away that tax shield.

In another major decision, the court ruled 5-3 that states may create a "campaign-free" zone out to 100 feet beyond all election polling places, and insulate voters within that area from all distribution of campaign literature, display of campaign posters or buttons, or solicitation of votes.

Maryland is one of 36 states with a polling-day law like that; those states can continue to enforce those restrictions.

Maryland also was one of three dozen states poised to start collecting taxes on mail-order and telemarketing merchandise, if the Supreme Court had given them constitutional permission. Maryland's stake in the tax controversy before the court was about $50 million a year in potential added tax revenues.

But the court said yesterday that it still believes those kinds of taxes put too heavy a burden on doing business across state boundaries -- the same view it held in 1967 when it first created clear-cut state tax immunity for direct marketing.

States, the court said then, may not require direct-merchandising companies to collect taxes from customers in states where those companies have no stores, no warehouses and no salesmen. States had wanted to levy taxes reasoning that the merchandise is used inside the state, thus should be taxed just as something bought from a store inside the state would be.

Justice John Paul Stevens noted yesterday that the court had drawn intentionally "a bright line" back in 1967 against taxing mail-order purchases.

The Stevens opinion declared specifically, though, that the Constitution gives Congress the complete power to erase that bright line of protection.

States have been trying for years to do just that, but the effort has been stymied by doubts of Congress' authority to act. Those doubts have now been removed.

The doubts had been based upon the fact that the court's 1967 ruling was based in part upon the court's view that taxing of direct marketing would be unfair under the Constitution, because those taxes would have to be collected by companies that merely send goods into the taxing state and have no other contacts there.

As a part of its new decision, however, the court said it no longer considers state taxes on direct marketing to be unfair, in a constitutional sense. That industry now continuously seeks to sell its merchandise in many states where it has no other contacts, and thus the court said it would not be unfair to require direct marketers to collect the taxes.

With that aspect of the 1967 ruling overturned, Congress now could -- if it wished -- pass a law that would let states start taxing direct-marketing sales. Such taxes would work this way: The tax would be aimed at the purchaser, but the direct-marketing firm would have to collect the tax from the customers, and then turn the revenue over to the state.

Estimates are that, if Congress now clears the way for that kind of tax, the 36 states with laws already on the books in anticipation of that day could start collecting some $3.2 billion a year in new revenues.

Marvin Bond, a spokesman for the office of the Maryland state comptroller, said it appeared that the new ruling had maintained the status quo on state taxing authority but had created a new opening for Congress to act.

The states, he predicted, "will begin now to put more pressure on Congress to put this on the front burner."

The court's ruling came in a case from North Dakota, where the state Supreme Court had ruled a year ago that the Supreme Court's 1967 ruling against taxes on direct marketing had been overtaken by changes in that huge industry, and by changing Supreme Court doctrine on taxing power.

The test case, Quill vs. North Dakota, involved an Illinois-based direct marketer of office supplies and equipment, Quill Corp.

Only Justice Byron R. White dissented in the Supreme Court yesterday.

The Supreme Court's second significant ruling yesterday, allowing states to ban all "electioneering" within 100 feet of polling places, came in a Tennessee case. All 50 states have laws putting some restrictions on what may occur near polling places; 36 of those states ban electioneering within 100 feet or more from the entrance to the polls.

Some states ban electioneering as far as 300 feet from the polling places. The court did not say whether that would be a valid limit; it said only that 100 feet was not too great.

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