The free market won a major victory at the Supreme Court today. In a 5-4 ruling, the court gave South Dakota the right to impose a sales tax on online businesses that did not have a physical presence in the state. The decision focused on what constituted a “substantial nexus” of activity. Previously, it had been determined that mail order catalogs and online stores did not meet this requirement. Having a physical presence in the state was the real test for whether a sales tax could be imposed. However, citing changing economic realities, the court found a “pervasive online presence” did constitute a nexus and so could be taxed.
Obviously, this ruling is going to provide a huge financial boon for states and local governments. Both the decision and the dissent noted the many millions of dollars that governments lose in sales tax due to the old rules. In areas that rely heavily on sales tax, like South Dakota and Springfield, bringing more of that money back will help shore up their budgets.
Yet the real importance of this ruling is one of fairness. Justice Kennedy pointed out that some online retailers, like Wayfair, assist tax evasion by not collecting it themselves, and used their non-collection as an advertising point. Yet these same stores rely on the local services supported by sales taxes to actually engage in commerce. Local governments thus have to shift the tax burden to other businesses, further disadvantaging brick-and-mortar stores.
States are still not allowed to discriminate against interstate commerce. Constitutionally, businesses in other states cannot be penalized for being out-of-state. But that standard had been applied in such a way that, in the era of near-universal e-commerce, forced states to subsidize out of state businesses at the expense of their local retailers. Kennedy spoke of a lack of “storefronts, distribution points, and employment centers that otherwise would be efficient or desirable” as a result. Instead, virtual stores that could provide far more shopping options are shielded from taxes that much smaller stores are forced to pay. He rightly noted that the “physical location” standard which led to this unequal situation was itself arbitrary and poorly justified even when it was written.
In his dissent, Justice Roberts noted that complying with sales tax laws from around the nations could prove excessively burdensome. He listed numerous examples of complex rules in individual states, as well as the differences between states. Although theoretically the software to manage these rules would be easy to create, it does not currently exist, and may or may not ever exist. Forcing these regulations onto online businesses could prove damaging to smaller retailers. The complexity of the tax code is a serious issue, and one worth addressing. But it is a different issue from deciding if a whole class of businesses should be exempt from them. If the rules are too complex for online businesses to manage, they are probably also too complex for brick-and-mortar businesses.
The complexity of the tax code unfortunately overshadows what would otherwise be a solid free-market ruling. Sales taxes are regressive. There are too many rates and rules around the nation. But exempting some businesses from dealing with the regulatory burden is the wrong way to deal with it. Favoring some businesses over others is antithetical to the free market. Eliminating an artificial advantage online stores had over their local counterparts is a step towards a freer market, even if other problems still need to be fixed.
You can read the full decision here.
CWLP explains Integrated Resource Plan
What will CWLP look like in 20 years? Ensuring the city will have plentiful and reliable power is key for the wellbeing of the city. And because the City of Springfield owns the utility, this question is doubly important to residents. The city council wants to make the best planning decisions possible, and so earlier this year work began on an Integrated Resource Plan (IRP).
The IRP is a report that will help guide CWLP and the city as they decide how much capacity the power plants will have in the future, and what energy sources they will rely on. Because these decisions will have major ramifications for Springfield for decades to come, the city wanted to have as much public oversight as possible. As part of this process, the utilities committee was given a presentation on the progresses of the IRP so far. Part of the presentation was responding to public comments from the last meeting and listening to concerns from the current one.
How does the IRP work?
IRPs rely on very complicated economic models. They must first find all of the expenses the utility has now, and then predict how all of them are going to change over the coming decades. With more than 750,000 line items in the budget, that is easier said than done. This includes costs for fuel, personnel, regulatory compliance, new equipment and maintenance of old equipment.
Just as importantly, future usage patterns need to be predicted. CWLP needs to know how much power it needs to be able to produce before it can answer how it will actually do it. During the last IRP process in the early 2000s, the experts got this part wrong. Demand is 23 percent lower than the models projected, and so the other decisions that were made ended up being wrong.
The model is based on both facts and assumptions. Small changes in the assumptions can have major impacts on the final results. To create the most accurate prediction possible, nine different scenarios are being considered. These will look at what high coal prices, carbon taxes, or better renewable options will mean for the industry.
But models are impacted as much by what they leave out as by what they include. Items that are considered “out of scope” for the IRP model include health impacts, the coal ash ponds, and the proposed second lake. These factors all impact the real costs of coal-fired power plants. Most of the new public comments focused on the omission of these elements from the IRP. The decision not to include them struck some as a thinly-veiled effort to shift the outcome of the final report.
The IRP has also suffered from delays. While the report was authorized to take six months and be ready at the end of the year. Instead, it will be presented in mid-March. This delay was caused by The Energy Authority (TEA), the company assisting with the IRP, bumping CWLP down in the priority queue. While some delays are understandable, the council noted that they had only been informed of this delay the day of the meeting.
Still, the council is more concerned about getting reliable information than a fixed timeline. Previous resource plans did not age well. The city decided to add Dallman Unit 4 in the mid 2000s based on research about how the economics of power were supposed to play out. Higher prices and demand meant protecting the rate-payers from market volatility was going to be particularly valuable. It was also believed that CWLP would be able to sell excess power on the market for a profit. However, those projections did not pan out. By 2008, energy use entered a period of “unprecedented decline,” and the price of power collapsed. Overall, energy demand is 23 percent lower than projected, and average prices are down 40 percent. While this is not to second guess those decisions, the inaccuracy of the previous analysis still has major ramifications for CWLP and the city today. So it is a good sign that the city council is doing what it can to ensure this IRP is more accurate.
The next meeting to discuss the IRP will be the quarterly utility committee meeting in January. There is no set date for that meeting yet.
Illinois Republicans voice opposition to mileage tax
It is no secret that Illinois needs to improve its roads and bridges. Both Republicans and Democrats can agree that we need to invest in infrastructure development. But how we should pay for it is another matter. Most road projects are supported by the gas tax. While this tax worked well for many years, in recent years it has not generated sufficient revenue. Competing government objectives are partly to blame for the shortfalls. Government mandates for better fuel efficiency have reduced the amount of gas people need to buy. Now, the same amount of driving generates less gas tax revenue.
One idea to generate new revenue is a “Vehicle Miles Traveled” (VMT) tax, or just a mileage tax. Conceptually, it is very simple: drivers pay a fee based on the number of miles they travel. In practice, there are significant issues in implementing such a tax. Mileage taxes have a unique infrastructure issue in addition to all of the normal political issues regarding new taxes.
The technology problem
Mileage taxes do not enjoy the same bureaucratic infrastructure that helps with normal taxation. There is already a record of every transaction for the gas tax or other sales tax. Property taxes have the assessment system to know how much a property is worth. But even though every car has an odometer, there is no centralized tracking of how many miles any particular vehicle has traveled.
Relying on individuals to report their mileage would likely prove unreliable and inconvenient. Without some independent reading of the odometer, people might misreport how many miles they traveled, just as online sales tax long went under-reported. It would also be a huge pain for taxpayers. Annual or quarterly reporting would stick drivers with huge bills. More frequent reporting would result in smaller bills, but higher compliance costs.
Some technical solution would thus be necessary to ensure compliance. Only tracking the change in mileage could be done in a relatively nonintrusive way. But such a simple measure would not be sufficient. It is doubtful Illinois could levy a tax on miles driven in other states, or miles driven on privately owned roads. More sophisticated tracking would thus be necessary to tell when a vehicle traveled taxable miles. GPS tracking would be highly reliable for this, but raises major privacy concerns.
The political problems
Any mileage tax system would necessarily introduce some degree of increased government surveillance. The systems that would be legal to implement require high levels of GPS tracking. That alone would make a mileage tax politically toxic.
But there are other issues that make a mileage tax unpopular. Rural areas would be hit hardest due to the longer distances residents travel. Farmers would be hit particularly hard. And of course, any new tax is a tax increase, which historically is not popular. A VMT would raise the general tax burden in the state, which is already much higher than our neighbors.
Although Republicans from other states have expressed interest in the idea of a mileage tax, Illinois Republicans have come out strongly against the idea. Governor Bruce Rauner has repeatedly spoken out against the idea. He highlighted the technical necessity of a tracking device for any such scheme to work. State Representative Avery Bourne (R-95) also noted that the privacy was “another reason” to oppose a mileage tax. Congressman Rodney Davis (R13) said that he was “not as big a proponent of the VMT” as other revenue options. Davis said that the tracking issue would “impact” the ability to pass a mileage tax at the federal level.
Rauner and other Republicans have used the mileage tax issue in their attacks on the Democrats as well. Rauner has repeatedly claimed that JB Pritzker wants to implement a mileage tax. Although Pritzker has said the idea is “worth exploring,” Pritzker has denied having a plan to implement such a tax. Democrats have pushed mileage taxes in the past, but the effort was withdrawn in the face of stiff opposition. That plan had options for both GPS tracking and flat-fee options.
Annual bailout needed early for Jacksonville’s golf courses
The Jacksonville municipal golf courses ran into trouble a little early this year. Usually at the end of the year, the golf courses are short on cash and need the city’s help to make payroll. Typically, the courses request around $10,000 in late November. This is not surprising considering the courses perennially lose substantial amounts of money.
But this year, the request is much larger, and came much earlier. The courses requested $50,000 at the August 28th City Council meeting. According to the City Clerk, that $50,000 may not be enough to cover the remaining payrolls and purchases the course will face this year. Even with lower expenses, the courses are suffering from revenue shortfalls. Play is down at the Jacksonville courses, as it is at most courses around the nation.
What will the city do?
Based on the council’s discussion, the golf courses are going to continue to lose money, and taxpayers are going to continue to prop them up. The most substantive suggestion on what to do was to simply roll the budget for the courses into the Parks & Lake budget. This would make it easier to funnel money to the courses, while simultaneously making it harder to tell how much money they lose. Perennial revenue shortfalls make the bailout request an unpleasant annual ritual for the council. Councilors were obviously annoyed to be defending the losses from community members that raised issues with this year’s bailout.
The last four years have seen six-figure losses at the city’s golf courses. This week’s funding request suggests this year is going to be just as bad, and probably much worse. If the city council thinks having municipal golf courses is a net positive for the community, they need to own that decision. If that means higher taxes, so be it. Merely proposing changing the accounting suggests that the council does not believe the taxpayers share their support for the Links.
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