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Supreme Court Won’t Hear Amazon’s Online Sales Tax Case

The U.S. Supreme Court has declined to hear a case brought by Amazon and Overstock challenging a law in New York state requiring some out-of-state Internet retailers to collect sales taxes.

The case stems from a statute enacted in 2008 that required online retailers that enlist affiliate marketers who live in New York to collect the tax, even if the merchant has no physical presence within the state.

Under that novel interpretation of a 1992 Supreme Court ruling, New York held that in-state affiliate marketers were essentially the equivalent of employees, and thus constituted a nexus that satisfied the physical presence standard the high court had said was needed for a state to assert taxing authority.

In New York, as in other sales tax states, residents are required to report untaxed online purchases on their annual returns, but most shoppers do not.

Amazon and Overstock argued that the law was unconstitutional, claiming that it violated the Commerce Clause, but a New York appellate court ruled against the retailers in March.

“The bottom line is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden,” Chief Judge Jonathan Lippman wrote in the court’s ruling.

Lippman suggested that the physical presence standard that the Supreme Court set in the 1992 Quill v. North Dakota case, which involved a catalog company, might be outdated in the Internet age, though he acknowledged that that would be a matter for the high court to determine. Now that the Supreme Court has passed on the Amazon case, it raises the possibility that other states could follow New York’s lead and deem in-state website owners who participate in large retailers’ affiliate programs as the equivalent of sales agents and impose the sales tax requirement.

Amazon, for its part, has been lobbying Congress to enact a national sales tax law that would permit state authorities to require retailers to collect the taxes provided that they took steps to simplify their codes.

One such bill, the Marketplace Fairness Act, has passed the Senate, but remains stalled in the House. Amazon supports that measure, while rival eBay staunchly opposes it.

“The Supreme Court already has addressed the sales tax issue, saying in Quill that Congress can and should act to resolve it,” Amazon said in a statement responding to the Supreme Court’s decision not to hear its case. “The Marketplace Fairness Act now pending before Congress would protect states’ rights to make their own revenue policy choices while allowing them to collect more than a fraction of the revenue that’s already owed.”


Kenneth Corbin on Linkedin
Kenneth Corbin
Kenneth Corbin
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn.