[December 03, 2013]WASHINGTON (AP) — On perhaps the
busiest online shopping day of the year, the Supreme Court refused
to wade into a dispute over state sales taxes for purchases on
websites like Amazon.com, an outcome likely to prompt more states to
attempt to collect taxes on Internet sales.
Monday's court action means "it might be the last Cyber Monday
without sales tax," said Joseph Henchman of the Washington -based
Tax Foundation.
It's all 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.
The court's refusal "allows states that have passed laws like New
York's to continue doing what they've been doing," said Neal Osten,
director of the Council's Washington office.
This decision came down on Cyber Monday, expected to be the busiest
day of the year for online shopping. Huge numbers of people head
online on the first working day after the long Thanksgiving weekend
in search of Internet deals. Overall, Internet shopping has become
more and more popular, with the National Retail Federation
predicting that more than 131 million people would shop online on
Monday, up about 2 percent from last year.
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 blogs 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.
Without the affiliate programs, companies still can sell in those
states but just won't partner with local people and businesses that
refer customers to their sites.
Both companies collect sales taxes in some states. For example,
Overstock.com collects taxes in Utah, where it is based. Amazon says
it collects sales tax in 16 states.
"Today's Supreme Court decision validates New York's efforts to
treat both online and brick-and-mortar retailers equally and fairly,
by requiring all retailers with a presence in our state to collect
sales taxes," said New York Attorney General Eric T. Schneiderman.
But each state has its own rules. While Monday's result 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.
In October, for example, the Illinois Supreme Court threw out a law
that would tax certain Internet sales, saying the "Amazon tax"
violated federal rules against discriminatory taxes on digital
transactions. State officials are considering whether to appeal
their case to the U.S. Supreme Court.
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
on Internet sales taxes 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
companies with more than $1 million in sales annually.
The bill is now in the House, where there is no guarantee it will
make it to a vote. Supporters say it is needed out of fairness to
stores operating at a price disadvantage to online operations that
don't charge sales taxes, while some lawmakers oppose the change as
the imposition of a new tax.
Will more states enact laws after the Supreme Court result?
"States might take courage from this non-decision, but they
shouldn't," said Jonathan Johnson, executive vice chairman of
Overstock.com. He pointed out that the company pulled its New York
affiliate operations in 2008 after that state passed its law and
that other companies fled Illinois after that state passed a similar
law.
Internet companies will simply operate in states that have laws
advantageous to their businesses, Johnson said. "Unless all the
states choose to do this, I think there will be a strong affiliate
market" somewhere, he said.
Henchman, who is vice president, state projects for the Tax
Foundation, a national tax research association, noted that the
sales tax issue may become moot for Amazon if it goes through with
its drone program for same day delivery. Amazon.com has said it's
working on a self-guided drone with a range of 10 miles that could
deliver packages to customers in areas remotely.
"In order to do this, they're going to have to build a lot more
warehouses," Henchman said, giving them in-state presences in those
markets and requiring them to collect state sales taxes.
Monday's court action means "it might be the last Cyber Monday
without sales tax," said Joseph Henchman of the Washington -based
Tax Foundation.
