In a decision that could end tax-free online shopping, the U.S. Supreme Court has chosen not to take up a long-running dispute between states and Web retailers, like Amazon. At issue is whether states can force Internet retailers – including firms that sell promotional products – to tax customers in places where they don’t have a physical presence. The decision leaves intact a New York appeals court ruling that allows the Empire state to compel the online taxation.
“Today’s Supreme Court decision validates New York’s efforts to treat both online and brick-and-mortar retailers equally and fairly,” said New York Attorney General Eric Schneiderman.
Besides New York, a dozen states with similar laws are immediately affected by the High Court decision. They are: Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Maine, Minnesota, North Carolina, Rhode Island, Texas and Vermont. Laws in Illinois and Colorado are currently being argued in court. According to the National Conference of State Legislatures, states lost about $23 billion last year because they could not collect sales taxes from most online sales.
To date, Congress has largely avoided the Internet tax debate. Earlier this year, the Senate did pass the Marketplace Fairness Act – federal legislation in line with New York’s law – but the U.S. House is not close to taking any action on the measure. The Marketplace Fairness Act would apply to retailers with at least $1 million in annual sales.
The Internet tax question was last argued before the Supreme Court 20 years ago, when justices ruled in 1992 that North Dakota could not collect sales taxes from a mail-order business with no physical presence there. That precedent has allowed Web retailers to only collect taxes in certain states.
In the New York case, both Amazon and Overstock.com argued against the tax collection. As is customary, the Supreme Court gave no reasoning as to why it declined to hear an appeal.