The past twenty or so years, the addition of the internet and online market has caused a great deal of confusion (and disagreements) when it comes to sales tax. Of course, online retailers do not wish for the added burden of state tax on purchases, but this is unfair to the “brick-and-mortar” retailers who must collect sales tax that online retailers can easily avoid. Besides, it is estimated that states currently miss out on collecting $11 billion in revenues without charging sales tax for online sales, so naturally most states are all for “fairness” in levying sales tax for in- and out-of-state retailers. On the other hand, lawmakers certainly don’t want the bad publicity that comes with raising or implementing new taxes.
The state of New York has been at odds with online retailers like Amazon. Earlier, a New York appeals court ruled that Amazon.com and most other online retailers must collect state sales taxes when they pay affiliates to promote links to their products. Amazon and Overstock.com would not be defeated and sought review by the Supreme Court claiming that the New York ruling “provides a road map for other state legislatures to enact similarly burdensome legislation.” The case made its way to the US Supreme Court last December. And the court’s ruling? They refused to hear Amazon/Overstock’s case and upheld the New York ruling.
State Attorney General Eric Schneiderman was satisfied with the ruling. “Today’s Supreme Court decision validates New York’s efforts to treat both online and brick-and-mortar retailers equally and fairly,” he said.
That’s not the end of the story though. By upholding the state ruling and not hearing Amazon and Overstock’s case, pressure is being put on congress to resolve the issue. Last May, the Senate passed the Marketplace Fairness Act to allow states to levy state and use taxes on out-of-state retailers. Many other states have similar laws as New York, but states will also hesitate to levy taxes on online/remote retailers, since retailers will frequently stop supporting business in states with “burdensome” taxes.
The NY state court has noted: “The world has changed dramatically in the last two decades, and it may be that the physical presence test is outdated…An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet.”
