Supreme Court Declines Case on Making Online Retailers Collect Taxes

The U.S. Supreme Court announced Monday, Dec. 2, that it will not review a case involving the online sales tax collection that brick-and-mortar retailers argue puts them at a disadvantage to online merchants. The decision came down on Cyber Monday, the busiest day of the year for online shopping, and is expected to prompt more states to attempt to collect taxes on Internet sales.

The court's ruling is part of a long, ongoing battle between e-commerce businesses and stores. Brick-and-mortar retailers must collect sales tax, but online retailers don't in many states, which retailers contend gives them a pricing edge.

Amazon (Nasdaq: AMZN) and (Nasdaq: OSTK) initiated the petition, challenging a 2008 New York law in which New York residents owe state taxes on out-of-state online purchases, even if retailers don't collect the taxes. New York was the first to enact such a law, but later on, 16 other states followed suit. Overstock and Amazon argue that such a tax in certain states can negatively affect their online business in those regions.

Historically, online retailers have not had to charge sales taxes in states where they lack a store or some other physical presence. Now, New York and other states argue that when e-tailers use affiliates, or people and companies that refer business to the site in exchange for a commission, those affiliates should be considered as a physical presence. Both Amazon and Overstock use affiliate programs.

In the wake of the Supreme Court's announcement, said the decision to not hear the case would have little impact on the company's current business and that it would not begin collecting sales tax in New York. Instead, "it simply means that we will continue not to engage New York Internet advertisers," according to a company statement.

Both Amazon and Overstock said they plan to press their case in Congress in hopes of getting a federal decision on Internet sales taxes that would apply to every state uniformly.

For more see:
This Washington Post article
This Wall Street Journal article

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