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Online Retailing

Supreme Court stays out of Internet tax debate

December 03, 2013

Washington--The U.S. Supreme Court has declined to hear a case from Amazon.com Inc. that challenges a New York law requiring the company to collect sales tax in the state, Bloomberg News reported Monday.

Amazon and Overstock.com Inc., another online retailer, said the New York law, upheld by the state’s top court, violates the constitution by demanding tax collection from businesses that don’t have facilities in that state. Amazon is headquartered in Seattle, while Overstock operates out of Cottonwood Heights, Utah, near Salt Lake City.

However, New York law states that retailers without a physical presence in the state must collect tax if they use a local resident to solicit business online. Amazon is subject to the law because it pays commission to New York-based affiliates for hosting online links to the retailer.

According to Bloomberg News, the justices made no comment in rejecting the appeals. The court’s refusal to hear the case leaves the New York law intact.

Brick-and-mortar store owners, including jewelers, have spoken up about the advantage not having to collect state sales tax gives online retailers. Jewelers of America, along with independent retailers, have lobbied Capitol Hill for years on behalf of the industry for sales tax fairness.

In February, the latest federal sales tax fairness legislation, the Marketplace Fairness Act of 2013, was introduced. The act would give states the option to require the collection of sales and use taxes already owed under state law by out-of-state businesses, rather than rely on customers to remit those taxes to the states, the method of tax collection to which they now are restricted.

U.S. Senators Dick Durbin (D-IL), Mike Enzi (R-WY), Lamar Alexander (R-TN) and Heidi Heitkamp (D-ND) introduced the act, which was passed by the Senate in May but has stalled in the House of Representatives.

According to Durbin, under the current tax loophole, many online and catalog retailers do not collect the same taxes as brick-and-mortar retailers do from customers who make purchases in their stores.

He said the Supreme Court’s decision, “further illustrates why a national solution is needed to level the playing field for local brick-and-mortar retailers and help them compete more effectively against out-of-state Internet retailers.”

The bill to date has the support of more than 280 labor, business and government organizations, and 22 governors have supported leveling the playing field for businesses by addressing sales tax fairness, Durbin said.