Can states collect sales tax from online retailers that have no physical presence in the state? For now, the answer is yes after the Supreme Court refused a request by Amazon and Overstock to review a lower court’s decision that upheld a law that lets New York collect taxes if the companies advertise in the state.
The Supreme Court ruling on Monday comes as the “Market Place Fairness Act,” which would require internet retailers with more than $1 million in sales to collect sales tax for state government, remains stalled in the House of Representatives.
The issue is contentious, with brick-and-mortar outlets like Wal-Mart claiming that online retailers can sell for less since they don’t collect the sales tax. Under current rules, individual consumers are supposed to report the tax-free items they buy from outside their state but, in practice, almost no one does so.
In the New York case, Amazon and Overstock challenged a 2008 state law that required them to collect tax because they have a presence in the state through their affiliates — third-party websites that make a commission when they refer traffic to the retail giants. Amazon, noting that the company has no offices or employees based in New York, had argued that the affiliate presence wasn’t enough to give it a legal presence in the states — but a divided appeals court sided with the state government.
In rejecting the appeal, the Supreme Court, as is its custom, did not provide reasons.
The Court’s refusal means that attention is likely to turn again to Congress, where a coalition of retailers — and even many Republicans — are supporting the Marketplace Fairness Act. Opponents, however, argue that a state-by-state tax collection rule will hurt internet commerce, and be an administrative headache for small companies.
Despite its Supreme Court challenge, Amazon is supporting the Marketplace Fairness Act in what is likely a tactical move as it expands its presence in more and more states.