Supreme Court Turns Away Challenge to Online Sales Tax

In what supporters of Internet sales tax are labeling a victory, on Dec. 2, the U.S. Supreme Court declined to hear a challenge to New York state’s online sales tax law.

New York’s law, which was passed in 2008, requires remote sellers with local affiliates to collect sales taxes from in-state purchasers. E-tailers Amazon and Overstock had asked the nation’s highest court to overturn the law after the New York State Court of Appeals upheld it in March. However, their petition was declined without comment.

The Supreme Court had previously ruled on the remote seller issue in the 1992 decision Quill v. North Dakota. In that ruling, the Court said states could not collect taxes from companies that do not have a physical presence in their jurisdiction, but added that Congress could enact legislation establishing a national standard.

One bill trying to do that, the Marketplace Fairness Act, passed the Senate in May, but currently is stalled in the House of Representatives.

Supporters of the legislation, including the Retail Industry Leaders Association, hope the Court’s decision will provide new momentum for a federal solution.

“It is up to Congress to close the online sales tax loophole,” said RILA senior vice president for government affairs Bill Hughes in a statement. “After a strong bipartisan vote in the Senate and positive developments in the House in 2013, this should be the last holiday shopping season that online-only retailers get special tax treatment over their brick-and-mortar competitors.”

But Rebecca Madigan, executive director of the Performance Marketing Association, which represents online affiliates, wrote in a blog post that she was “terribly disappointed” by the Supreme Court’s action.

“There are over 80,000 online affiliate marketers in the U.S. who have had their incomes devastated by various states’ attempts to regulate interstate commerce,” she said. “The laws don’t work. They don’t compel e-retailers to collect sales tax. The states who have passed these laws have actually lost income tax revenue from the small businesses forced to move out-of-state or down-size.”

Madigan also touted national legislation as the “only viable solution” to the issue. 

JCK examined the debate over online sales tax in September.

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JCK News Director