Supreme Court Passes on E-Commerce Tax Case
The effects of Monday's decision by the U.S. Supreme Court could be particularly chilling for e-commerce vendors if other states begin implementing legislation like New York's, warned David Selig, principal of Selig & Associates and founder of TrueTaxHelp.com. "It has far-reaching ramifications to even small mom-and-pop businesses," Selig said.
Dec 3, 2013 11:55 AM PT
The U.S. Supreme Court on Monday announced it would not hear an appeal by Amazon and Overstock.com challenging a New York law that requires e-commerce companies to collect taxes from shoppers in the state even if the retailers don't have facilities there.
The decision is the latest twist in an increasingly complicated issue focused on whether states have the right to require e-commerce sellers to collect taxes on sales made by their residents.
For several years the answer was a decided "no," much to the dismay of the states, which lose approximately US$23 billion a year in uncollected online sales taxes.
A Pushback from States, A Retreat by Amazon
States have increasingly begun pushing back, however, and in recent years they caused Amazon -- once an outspoken defender of its right to sell to consumers without levying a sales tax -- to blink. The company is now collecting taxes in 16 states after negotiating deals with various revenue entities.
Some of Amazon's retreat was practical. It is diversifying its operations beyond its e-commerce roots, for example, as well as focusing heavily on same-day and next-day delivery, requiring that it have a presence in most states anyway.
Amazon also appeared to have acknowledged it was on the wrong side of a huge wave, as states became all the more determined after the recession to claim what was theirs.
Separate from these state-by-state initiatives, Congress has proposed federal legislation dubbed "the Marketplace Fairness Act" that would codify what the states are trying to do on a piecemeal basis.
The act has bipartisan support in Congress, but there is also significant opposition from other e-commerce vendors. As things stand now, the battle will likely remain on the states' front lines for the foreseeable future.
A Diverse and Complex Landscape
Unfortunately, these various battles are so nuanced it can be difficult for e-tailers to draw a blanket conclusion from them -- especially when states' laws and constitutions underpin the arguments, Ashley Forte, an associate with Arnstein & Lehr, told the E-Commerce Times.
"In general, you are going to see states continue to implement these types of laws, and it is going to be a state-by-state fight whether the state's supreme court will make a determination on this issue," she said.
There will continue to be contradictory rulings in different states, Forte predicted, and another factor is that the issues brought in front of any particular court may vary.
"Depending on the type of the lawsuit a supreme court receives, a court may find that it does or doesn't have enough of a constitutional basis to allow the state to collect the tax," Forte concluded.
Impact on E-Commerce
Considering this fragmented battleground, Monday's decision by the U.S. Supreme Court could have a chilling effect on e-commerce if it encourages states to duplicate New York's legislation, which is fairly severe, said David Selig, principal of Selig & Associates and founder of TrueTaxHelp.com.
"It has far-reaching ramifications to even small mom-and-pop businesses," Selig told the E-Commerce Times.
Just how broad the effect would be, however, is debatable.
"Even if other states come up with legislations similar to that of New York, that would hardly dent the growth of e-commerce in the U.S.," Mohammad Elahee, a professor of international business at Quinnipiac University, told the E-Commerce Times. "New technologies would allow the Internet retailers to be more efficient with order processing and delivery and keep the costs down, which would minimize the negative impact of Internet sales tax imposed by the states."
Also, consumers who buy online would not give up the convenience of e-shopping even if they have to pay state sales tax, he suggested.
"Sales tax is just one out of many factors that affect e-commerce," Elahee said, and "its importance or possible negative impact is often overstated by the Internet retailers."
Waiting for MFA
Even so, online retailers would welcome the simplicity of one tax law -- especially since "no taxes" is no longer an option.
The Marketplace Fairness Act "will eventually lead to sales tax unification across the U.S.," Spreadshirt CEO Phil Rooke told the E-Commerce Times.
Amazon did not respond to our request to comment for this story.