Supreme Court won’t stop NY Internet taxation
Packages are ready to ship move along a conveyor belt at the Amazon.com 1.2 million square foot fulfillment center, in Phoenix. Millions of shoppers are expected to click on items on Monday, as retailers rev up deals to grab online holiday shopping dollars on the first working day after the busy holiday weekend. AP photo
WASHINGTON — On perhaps the busiest online shopping day of the year, the Supreme Court refused on Monday to wade into a dispute over state sales taxes on purchases on websites like Amazon.com, an outcome likely to prompt more states to attempt to collect taxes on Internet sales.
The high court without comment turned away appeals from Amazon.com LLC and Overstock.com Inc. in their fight against a New York court decision forcing them to remit sales tax the same way in-state businesses do. This could hurt online shopping in that state, since one of the attractions of Internet purchasing is the lack of a state sales tax, which makes some items a little cheaper than they would be inside a store on the corner. And the effect could be felt far beyond New York if it encourages other states to act. The National Council of State Legislatures estimates that states lost an estimated $23.3 billion in 2012 as a result of being unable to collect sales tax on online and catalog purchases.
This decision came down on Cyber Monday, expected to be the busiest day of the year for online shopping. Millions of people head online on the first working day after the long Thanksgiving weekend in search of Internet deals. Overall, Internet shopping has become more and more popular, with the National Retail Federation predicting that more than 131 million people would shop online on Monday, up about 2 percent from last year.
Web retailers generally have not had to charge sales taxes in states where they lack a store or some other physical presence. But New York and other states say that a retailer has a physical presence when it uses affiliates — people and businesses that refer customers to the retailer’s website and collect a commission on sales. These affiliates range from one-person blogs promoting the latest gadgets to companies that run coupon and deal sites.
Amazon and Overstock both use affiliate programs. Amazon has been collecting sales tax in New York, even as it fights the state over a 2008 law that was the first to consider local affiliates enough of an in-state presence to require sales tax collection. Both companies collect sales taxes in some states. For example, Overstock.com collects taxes in Utah, where it is based.
But each state has its own rules on Internet sales taxes. While today’s Supreme Court result settles the issue for New York, legislatures and courts in other states have come to different conclusions — meaning that some Americans will still get state-tax free Internet purchases from certain websites, while others won’t simply because of where they live.
In October, for example, the Illinois Supreme Court threw out a law that would tax certain Internet sales, saying the “Amazon tax” violated federal rules against discriminatory taxes on digital transactions.
Amazon supports the Marketplace Fairness Act, which passed the Senate in May. That law would require states to simplify their sales tax laws in exchange for being able to tax Internet sales from companies with more than $1 million in sales annually. The bill is now in the House, where there is no guarantee it will make it to a vote.
“States might take courage from this non-decision, but they shouldn’t,” said Jonathan Johnson, executive vice chairman of Overstock.com. He pointed out that the company pulled its New York affiliate operations in 2008 after that state passed its law and that other companies fled Illinois after that state passed a similar law.
Internet companies will simply operate in states that have laws advantageous to their businesses, Johnson said. “Unless all the states choose to do this, I think there will be a strong affiliate market” somewhere, he said.