The Online Sales-Tax Stalemate Continues

Carla Turchetti by Carla Turchetti on January 6, 2014

The U.S. Supreme Court is refusing to get involved in the ongoing dispute over the collection of sales tax on online purchases. On December 2,2013, the court declined to hear a case in which Amazon and Overstock challenged a New York law allowing the state to collect sales taxes from online retailers. With no action from the court, it may be up to Congress to step in and settle the issue and act on an invitation that was issued by the Supreme Court more than twenty years ago.

Collecting taxes has become an increasingly contentious issue as online commerce has grown: States want to collect the billions of dollars in estimated sales-tax revenue they lose when goods and services are sold online. Yet many online retailers argue that they shouldn’t be charged to do business in states where they don’t operate.

We R Here, a coalition of web-based businesses, believes that charging sales tax on Internet purchases would place an unfair burden on small business owners and keep them from competing with larger retail operations.

The National Retail Federation on the other hand, believes that it is time for online retailers to be responsible for charging sales tax so that the playing field is levelled for small businesses competing with retail giants.

The nation’s highest court hasn’t ruled on the issue since 1992, when it heard Quill Corp. v. North Dakota. In that case, North Dakota wanted to collect taxes on mail orders fulfilled by Quill. But the court ruled against it, arguing that Quill lacked a significant physical presence in the state.

The decision served as the standard for collecting sales tax for next two decades but in that ruling the justices wrote, “This aspect of our decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”

The Quill ruling ended in March 2013, when a New York court ruled that if an online retailer has affiliates promoting its links, sales tax may be charged in the states where those affiliates are located. Since then, at least a dozen states have adopted the affiliate sales-tax rule.

In May, the U.S. Senate passed the Marketplace Fairness Act, which if signed in law will compel states to simplify their tax laws and collect sales taxes from remote sellers. The bill, which is waiting for action from the House of Representatives, could become the new mandate in online sales taxation.

Many retailers believe online sales tax is inevitable. Amazon voluntarily collects sales tax in 16 states, where it has offices or distribution facilities. The company supports the Marketplace Fairness Act and its mission to streamline sales-tax calculations.

Carla Turchetti

Carla Turchetti is a veteran broadcast, print and digital journalist who is passionate about small businesses and the stories behind them. Carla is a small-business columnist at the News & Observer, the regional daily newspaper in Raleigh, North Carolina.