Online sales tax – is it constitutional? That’s the question Amazon wanted an answer to when it petitioned the Supreme Court to hear its argument against New York state regarding the state’s right to collect sales tax from purchases made in the state despite the online retailer not having a physical presence in the state. Well, Amazon will have to wait a bit longer to get an answer.
Forbes reports that the Supreme Court has refused to hear Amazon’s lawsuit against New York state. For those just joining us, New York instituted a law in 2008 that said online retailers had to collect sales tax even if they were tangentially related to a physical presence in state. In this case, Amazon was forced to collect sales tax merely because it sold advertisements through a New York-based Web firm.
As you can imagine, Amazon saw the New York law as an overreach of the state’s ability to collect taxes. The online retailer sued the state, but the state Supreme Court ruled that the law was constitutional. By refusing to hear the case, the SCOTUS has effectively said that Amazon will now have to abide by the New York online sales tax law.
Is this a big deal? Not really, as Amazon has been one of the biggest proponents of the much maligned Marketplace Fairness Act. The legislation, which was passed by the Senate earlier this year, would require all online retailers to collect sales tax from every customer regardless of having a physical presence in a state.
So, why is Amazon throwing its weight behind a bill that would tax purchases made in every state while simultaneously fighting a bill that does the same thing in just one state? It’s all about priorities. The Marketplace Fairness Act wouldn’t affect Amazon that much as it continues to build out more fulfillment centers in more states thus giving it a physical presence in more states. If the Marketplace Fairness Act isn’t passed, the retailer obviously doesn’t want to be stuck collecting sales taxes in states that it doesn’t have a presence in. That way Amazon can then barter with those states to collect sales tax in exchange for the state helping to build more fulfillment centers.
In short, Amazon has a plan worked out for either scenario, but the New York law throws a monkey wrench into those plans. Even if the Marketplace Fairness Act isn’t passed, other states that Amazon doesn’t operate out of might follow New York and pass bills that target large online retailers before Amazon has a chance to negotiate with them.
In the end, we’re all probably going to end up paying sales tax for online purchases. The only question that remains is how those taxes will be collected. Will online sales tax legislation be introduced on a state-by-state basis, or will the federal government pass the Marketplace Fairness Act? My money’s on the former as House Speaker John Boehner doesn’t seem too interested in approving new any taxes anytime soon.
But hey, at least we’re getting drone delivery by air out of it.