This is The Mouthpiece, a guest contribution by Martin Owens. If you would like to submit a contribution please contact Bill Beatty for submission details. Thank you.

For every problem, as H.L. Mencken noted, someone proposes a solution: neat, plausible, and wrong. And the syndrome strikes again in the case of South Dakota v Mayfair, just decided by a 5 to 4 margin in the US Supreme Court.

The question before the Court was essentially this: can a state charge state sales tax on a purchase made online from that state to a retailer located elsewhere, who then ships the purchase in? Up until now, the answer was mostly no. In the important 1992 case of Quill v North Dakota,1 the Court ruled that in order for state sales taxes to apply, that seller had to have a presence amounting to a “substantial nexus” with that state. This case was decided before the Internet came on the scene, but nevertheless meant  that thousands of small businesses could now cheaply and efficiently service a mail order market without the bother of keeping t rack of multiple tax codes.

When the Internet came along, the possibilities exploded. The pattern was explained in a 2006 book called “The Long Tail”. 2 If you want to open a business specializing in, let us say, buying and selling collectible stamps for the stamp-collector crowd, the old way of doing things dictated that you open up in or near a big city, a metropolitan population center. Because only a small percent of the population are dyed-in-the-wool stamp collectors that will pay $300 for a penny postage stamp from 1847 with Ben Franklin’s picture on it. So the bigger the population center, the better the chances that the area holds enough customers to keep your operation going. Otherwise, the entry costs- permits, licenses, ground rent, employee salaries, insurance, taxes, transportation- will prevent you from making a profit and drag your business under.