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US Supreme Court Refuses To Rule On 'Amazon Tax'

by Mike Godfrey,, Washington

04 December 2013

With the Marketplace Fairness Act (MFA), which would legalize state taxation of online retail sales, still becalmed in Congress, the Supreme Court of the United States (SCOTUS) has decided not to get involved and has refused to hear a case brought by Amazon against New York's online sales tax.

While, under a 1992 "pre-internet sales boom" SCOTUS ruling, known as the "Quill" decision, retailers are only required to collect sales tax in states where they also have bricks-and-mortar stores, the MFA would give a state the option to require online retailers with national annual sales greater than USD1m to collect the tax, even if the websites lack that physical "nexus" in the state.

SCOTUS also decided in 1992 that only Congress has the authority to regulate interstate commerce under the Commerce Clause of the US Constitution, and, despite the fact that many states have already responded to the Quill decision by introducing their own online sales tax laws, it is still widely believed that only Congressional action will be able to make such laws and agreements effective. That belief appears to underlie the decision taken by SCOTUS in refusing to hear Amazon's case against New York State.

Despite it having already concluded sales tax collection agreements with several states, particularly those where it has established warehousing facilities, Amazon has taken legal action against those states, such as New York, that have attempted to expand the meaning of a seller's physical nexus to include its affiliate companies (that attract buyers by a link to the retailers' websites in exchange for a commission out of each sale) – the so-called "click-through" nexus.

There is currently a disparity of judgments between state courts – with, for example, the New York Court of Appeal having previously passed its click-through nexus tax, and the Illinois Supreme Court having thrown out, as recently as October this year, the similar tax imposed by Illinois in 2011. Prior to its refusal to accept the New York case, it had been believed that litigation between the state governments and online retailers would have to be presented, sooner or later, before SCOTUS.

Now that SCOTUS has felt unable to accept a representative case, without making any comment but almost certainly because it still considers the problem to be constitutional, Congress will have to remain as the final arbiter on the issue. However, the latter also does not seem to be able to take a decision, with the MFA, having been passed by the Senate, currently experiencing considerable Republican opposition and being stuck in the House of Representatives Judiciary Committee.

TAGS: court | compliance | tax | business | sales tax | tax compliance | commerce | law | agreements | internet | e-commerce | United States | retail

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