Supreme Court Won’t Stop NY’s Internet Taxation

On perhaps the busiest online shopping day of the year, the Supreme Court refused on Monday to wade into a dispute over state sales taxes on purchases on websites like Amazon.com, an outcome likely to prompt more states to attempt to collect taxes on internet sales.

It’s part of a furious battle — also including legislation in Congress — among internet sellers, millions of buyers, aggrieved brick-and-mortar stores and states hungry for billions of dollars in extra tax revenue.

The high court without comment turned away appeals from Amazon.com LLC and Overstock.com Inc. in their fight against a New York court decision forcing them to remit sales tax the same way in-state businesses do. This could hurt online shopping in that state, since one of the attractions of internet purchasing is the lack of a state sales tax, which makes some items a little cheaper than they would be inside a store on the corner.

And the effect could be felt far beyond New York if it encourages other states to act. The National Council of State Legislatures estimates that states lost an estimated $23.3 billion in 2012 as a result of being unable to collect sales tax on online and catalog purchases.

Web retailers generally have not had to charge sales taxes in states where they lack a store or some other physical presence. But New York and other states say that a retailer has a physical presence when it uses affiliates — people and businesses that refer customers to the retailer’s website and collect a commission on sales. These affiliates range from one-person sites promoting the latest gadgets to companies that run coupon and deal sites.

Amazon and Overstock both use affiliate programs. Amazon has been collecting sales tax in New York, even as it fights the state over a 2008 law that was the first to consider local affiliates enough of an in-state presence to require sales tax collection. Overstock ended its affiliate program in New York in 2008 after the law passed and has ended its affiliate programs in other states that have tried to force it to collect sales taxes.

Both companies collect sales taxes in some states, but each state has its own rules. While the Supreme Court decision settles the issue for New York, legislatures and courts in other states have come to different conclusions — meaning that some Americans will still get state-tax free Internet purchases from certain websites, while others won’t simply because of where they live.

And the big Internet sellers are hardly giving ground after Monday’s Supreme Court result. Both Amazon and Overstock said they plan to press their case in Congress in hopes of getting a federal decision that would apply to every state uniformly.

Amazon supports the Marketplace Fairness Act, which passed the Senate in May. That law would require states to simplify their sales tax laws in exchange for being able to tax internet sales from larger companies. The bill is now in the House.

“Unless all the states choose to do this,” said Jonathan Johnson, executive vice chairman of Overstock.com, “I think there will be a strong affiliate market” somewhere.

This article appeared in print on page 1 of the December 3rd, 2013 edition of Hamodia.