Amazon Takes Fight Over Associates And Sales Tax To The U.S. Supreme Court

Amazon (NASDAQ:AMZN) is taking its fight over New York's online sales tax to the U.S. Supreme Court, the Seattle Times reported.

The e-commerce giant, which has spent years working its way through the state courts in New York, is asking the high court to rule on whether states can require sales-tax collection by out-of-state online retailers that don't have physical operations in the state. Specifically, Amazon is challenging the ruling by tax authorities in New York (and other states) that its "associates," independent websites that refer business to Amazon and are paid by the referral, qualify as a "physical presence" in the state.

Amazon has cut sales-tax deals with many states, agreeing to collect sales tax from state residents who order from Amazon in exchange for special incentives and property-tax treatment when Amazon builds distribution centers and other facilities. Amazon had built 89 such warehouses by the end of 2012. Amazon also supports a federal law that would legally enable online sales-tax collection by states.

But in New York, the one state where Amazon sued to fight the associates-are-a-physical-presence ruling, the legal battle continues. That's far less surprising than some news reports portray it. Amazon has said in the past that the New York case was about "nexus"—the legal term for a retailer's physical presence in a state—and not whether customers owed the taxes. There was no point in Amazon filing multiple lawsuits over a dispute about the U.S. Constitution's "Commerce Clause," which will apply to all states regardless of their own laws.

That federal bill, the Marketplace Fairness Act, was passed by the Senate in May but now appears likely to go nowhere in the House. In the meantime, it's strongly in Amazon's interest to get a high court ruling on whether associates qualify as a retailer's physical presence. If the Supreme Court agrees that, as Amazon contends, they're just advertising, that could affect how Amazon negotiates with other states and operates its associate program in the time until Congress actually passes a law—which could be years.

A successful Supreme Court appeal could also mean a windfall for Amazon, which has been collecting and forwarding sales tax money to New York since 2009. If the U.S. Supreme Court decides that the state never had the authority to require Amazon to collect the taxes, Amazon could conceivably sue the state for compensation. In practice, though, that compensation would probably be in the form of the same kind of tax deal Amazon has gotten from other states.

For more:

-See this webinar, The New Tax Reality
- See this Seattle Times story
- See this Financial Times story

Related stories:

Internet Sales Tax Not Dead Yet, Says Congressman Who Can Kill It
Online Sales-Tax Bill Passes Senate, With An Uncertain Future In The House
Ebay CEO: No, Really, We're Not Against Online Sales Taxes, Honest!

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