Amazon, Overstock Rejected By Supreme Court On New York Sales Tax Re-Evaluation
December 3, 2013

Supreme Court Rejects Appeal Of New York Internet Sales Tax

redOrbit Staff & Wire Reports - Your Universe Online

The Supreme Court has rejected an appeal to re-evaluate a New York state law requiring and other online retailers to pay sales tax in the state, a decision that will likely prompt other states to move to collect taxes on online sales, according to Bloomberg News and various other media outlets.

The ruling means Amazon, which has no offices, distribution centers or workforce in New York, and other Internet retailers must collect and remit sales taxes for goods sold online to residents of New York.

Monday’s Supreme Court decision is only the latest step in a long, contentious battle between online retailers, consumers, brick-and-mortar stores and cash-hungry states searching for billions of dollars in new tax revenue.

The nation’s top court dismissed the appeal from Amazon and without comment after the New York State Court of Appeals ruled the tax constitutional in March. State governments and big box retailers have long argued that online retailers should be required to collect sales taxes, and that not doing so gives these ‘e-tailers’ an unfair advantage over traditional retailers who sell their merchandise in stores.

But Amazon and others argue that the constitution bans taxes on interstate commerce, and that prior court decisions have held that online retailers must collect sales taxes only in states where they have a physical presence.

In the New York state case, the court appears to narrow that exemption by defining the referring affiliate partners of Amazon and Overstock as "an in-state sales force."

In other words, because Amazon and Overstock pay commissions on these sales from Web site operators located in-state, New York is entitled to collect taxes, the New York state court ruled in March.

"The world has changed dramatically in the last two decades, and it may be that the physical presence test is outdated," the court said in its ruling, concluding that "active, in-state solicitation" establishes an in-state presence that requires the collection of sales taxes.

These in-state referring partners are often coupon websites or bloggers that earn a commission on sales by directing online shoppers to the Internet retailers.

Seattle-based Amazon currently collects sales taxes in several states, but has made deals in other states, such as California, to delay the collection of sales taxes in exchange for establishing distribution centers that create jobs in those states. collects taxes in Utah, where it is headquartered.

After Monday’s Supreme Court ruling, an Amazon spokesman said the issue should now fall to Congress.

"The Supreme Court already has addressed the sales tax issue, saying in (an earlier ruling) that Congress can and should act to resolve it,” the spokesman said in an email to Fox Business.

"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."

Overstock executive vice chairman Jonathan Johnson told the AFP news agency that the Supreme Court ruling would have no impact on the company because it had already terminated relationships in 2008 with New York-based referral sites after the state passed its law.

"This will not affect Overstock," he said.

"We're hoped that the US Supreme Court would look at this case and reaffirm what physical presence meant. But it chose not to, so we will continue to run our business the way we have in the past and collect sales taxes where we have a physical presence."

Johnson noted that other companies fled Illinois after that state passed a law similar to New York’s.

"States might take courage from this non-decision, but they shouldn't," he said, adding that online retailers will simply operate in states that have laws beneficial to their businesses.

"Unless all the states choose to do this, I think there will be a strong affiliate market somewhere.”