In 2008, New York State established an affiliate nexus law requiring Amazon.com, Overstock.com, and many other out-of-state sellers to collect and remit New York sales tax. In response, Overstock severed its relationship with New York affiliates and sued the state. Amazon chose to comply with the law, while also suing.
Last spring, the New York Court of Appeals upheld the state’s position and both Amazon and Overstock appealed to the United States Supreme Court. After discussing the cases in private last week, the high court today denied petitions for appeal by both Amazon and Overstock. The justices rejected the case “without comment” (Businessweek.com).
Untaxed Internet sales = lost sales tax revenue
In the 1992 case Quill v. North Dakota, the Supreme Court determined that states could not impose a sales tax collection requirement on businesses without a physical presence in the state. Businesses selling uniquely by mail order were not required to collect sales tax. In 1992, the internet was not what it is today.
Increasingly, untaxed sales by online retailers are costing states millions in sales tax revenue. In 2012, the National Conference of State Legislatures estimated that states lost $23 billion in sales tax revenue from out-of-state sales, “with almost half of that coming from Internet transactions.” New York is expected to lose $253 million in 2013, thanks to untaxed Internet sales.
States want that revenue, and Main Street retailers want a level playing field. As a result, more and more states are imposing sales tax on out-of-state sales, often through affiliate nexus laws (or State departments of revenue are also reminding taxpayers of their use tax obligations; when sales tax isn’t collected on taxable sales, use tax is due.
A court decision
There was speculation that the Supreme Court would eventually settle the matter, either overturning the 1992 Quill decision or upholding it. The fact that the high court has denied the appeals by Overstock and Amazon suggests that the solution will have to be a federal one.
A federal solution
Last spring, the United States Senate passed the Marketplace Fairness Act of 2013 (MFA), federal legislation that would enable states to require certain out-of-state vendors to collect sales tax. Were it to pass as currently written, states would have to simplify their sales tax laws in order to do take advantage of the law. Read more about the Marketplace Fairness Act of 2013.
Earlier this fall, the Chairman of the House Judiciary Committee released 7 principles to guide the online sales tax discussion. Yet as of this writing, no discussion has ensued. MFA is still waiting on a table in the House.
In the absence of a federal solution, many states are taking matters into their own hands. More may choose to do so now that the Supreme Court has decided to let New York's Amazon tax stand.
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