This week, the Supreme Court declined to hear appeals filed by Amazon and Overstock.com that challenged the ability of states to collect sales tax on items sold online by out-of-state retailers.
The appeals stem from New York’s passing of what has become known as the “Amazon Tax,” which expands the definition of nexus to include in-state affiliate marketers. Amazon and Overstock.com claimed the expanded interpretation of nexus violates Constitutional interstate commerce law and due process.
The retail giants point to the US Supreme Court’s 1992 ruling in favor of mail-order business Quill Corp and against the state of North Dakota, which tried to collect sales tax from the company for goods used in state. Nexus was then interpreted to encompass physical outposts such as distribution centers, manufacturing plants, employees and stores.
Then, e-commerce came into its own. States have increasingly sought to generate tax revenues from online retailers. In addition to New York, states with Amazon Tax laws include Kansas, Kentucky, North Dakota, Texas and Washington.
Why Was The Issue Sent Back To The Lawmakers?
The Supreme Court justices, as is customary, did not comment why they refused to hear the appeals. There are several probably reasons, though. Sylvia Dion, a CPA with PrietoDion Consulting Partners who writes frequently about sales tax issues, says she was not surprised by the court’s decision.
Most importantly, she speculates, “Even though the Quill decision was decided more than twenty years ago, the Quill court made it clear that Congress has the power to change the laws. As a matter, the Supreme Court in Quill essentially said, not only does Congress have the power to change the law, they may be better equipped to do so.”
Many had also wondered if the October decision by the Illinois Supreme Court, which rendered that state’s affiliate “click-through” nexus void and unenforceable, would impact the justices’ decision to hear the Amazon and Overstock.com appeals.
Dion believes the Illinois decision had little to no bearing on the Supreme Court decision. “Even though the click-through laws of both states are essentially the same, the two state courts came to their conclusions based on different principles. New York’s high court addressed the constitutionality of the law, while Illinois’s high court did not address the constitutionality of the Illinois law because it was found it to be pre-empted by the Internet Tax Freedom Act,” says Dion. The ITFA prohibits states from imposing discriminatory tax burdens on online businesses. The Performance Marketing Association was the plaintiff in the Illinois case.
Future Of The Marketplace Fairness Act
The justice’s decision not to hear the Amazon and Overstock.com petitions puts some focus back on the Marketplace Fairness Act (MFA). The MFA was passed by the US Senate earlier this year and currently under consideration in the House, where it has languished. The bill’s supporters say it will put large online retailers on equal footing with brick and mortar businesses by requiring them to collect and pay state sales taxes. Opponents say it would put undue burden on online businesses, subjecting them to various laws of some 9,000 tax jurisdictions.
The lobbying efforts on both sides are powerful, and somewhat unexpected. Amazon has come down strongly on the side of the MFA in large part due to arrangements it’s already made with several states and because it continues to expand it physical presence with distribution centers around the country. Overstock.com and eBay are among those who vehemently oppose the MFA as being too burdensome.
While noting that nothing has happened with the MFA in months, Dion adds, “I do think that the Supreme Court’s decision is going to ‘light the fire’ under the proposal’s supporters. The pro-MFA side will likely realize that they MUST see the MFA or similar legislation enacted since the Supreme Court has washed it’s hands of the issue.”
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