High Court Rejects Legal Challenge by Amazon and Overstock
Michigan Taxpayers Reminded of Applicability of Use Tax to Online Purchases
In a press release dated November 27, 2013 The Michigan Department of Treasury reminds taxpayers that purchases made online remain subject to Michigan use tax. Use tax applies to transactions where the retailer does not collect sales tax, such as those between a consumer and a mail-order outlet, Internet retailer, or television shopping network. Taxpayers may report use tax annually when filing their Michigan individual income tax returns.
On Cyber Monday, the U.S. Supreme Court declined to intervene in the long-running battle over whether states can force online retailers to collect sales taxes, leaving consumers in many states to enjoy tax-free Internet shopping while others must pay up when they buy goods on sites like Amazon.com Inc. and Overstock.com.
The Supreme Court on Monday turned down a constitutional challenge by Amazon and Overstock to a 2008 New York law aimed at collecting sales taxes on online purchases by state residents, an issue that has pitted brick-and-mortar retailers against online companies as Internet shopping has surged.
The U.S. Supreme Court denied a request to review a ruling by the New York Court of Appeals which held that online retailers who sold their products solely through the Internet failed to demonstrate that a statutory provision that required out-of-state Internet retailers with no physical presence in New York to collect sales and use taxes was facially unconstitutional under either the Commerce Clause or the Due Process Clause. The statute at issue created a rebuttable presumption that a retailer solicits business in New York if any in-state entity was compensated for directly or indirectly referring customers to the retailer, whether by a link on an Internet website or otherwise, and the cumulative gross receipts from these and other New York affiliate referrals exceeded $10,000. The taxpayers both offered programs through which third parties (affiliates), who were compensated on a commission basis, agreed to place links on their own websites that directed users to the taxpayers’ websites.
New York's law, upheld by the New York Court of Appeals, was among the first to target collection of sales taxes from out-of-state sellers and has been duplicated by at least a dozen other states. Amazon, the nation's leading online retailer, and Overstock argued in court papers that New York's approach imposes tax-collection requirements that stunt growth in online commerce.
The Supreme Court's avoidance of the dispute comes as the prospect for a national online bill dimmed in Congress. The Senate earlier this year approved legislation to make it easier for states to collect online sales taxes. But the effort has since languished in the House amid criticism from tax opponents and resistance from some players in the online retail industry.
The high court's move to sidestep the issue sets no legal precedent, but it does suggest states can impose tax-collection requirements even in the absence of congressional action. State courts have issued divergent rulings on when state taxing authorities can require Internet retailers to collect sales taxes.
Amazon, seeking to avoid a piecemeal approach by the states, has thrown its support behind national legislation. "Congress can and should act to resolve" the sales-tax issue, a company spokesman said Monday. The company currently collects sales taxes from residents in 16 states, including populous states like California, New York and Texas, according to its website. Overstock is opposed to the Senate effort, saying the legislation doesn't do enough to prevent states from adopting a variety of tax approaches.
Online retailers can be forced to collect sales taxes from consumers in states where the retailer has physical operations. But a 1992 Supreme Court ruling held states couldn't compel an out-of-state vendor to collect taxes unless the vendor has a physical presence in the state.
New York's law makes it easier for the state to require online retailers to collect sales taxes even if they don't have an in-state physical presence. A key provision of the law focuses on marketing arrangements of online retailers. It says tax-collection responsibilities apply to Internet retailers that pay commissions to in-state websites that post links steering consumers to online stores.
New York residents owe state taxes on out-of-state online purchases, even if retailers don't collect the taxes. The state said in court papers taxes on most of those purchases are never reported or collected.
The state said its law helps it collect some of that revenue, while also restoring a competitive balance between Internet-only retailers and in-state brick-and-mortar stores that have always collected sales taxes.
Overstock.com, LLC v. New York State Department of Taxation and Finance, U.S. Supreme Court, Docket 13-252, Petition for Certiorari denied December 2, 2013; Amazon.com LLC v. New York State Department of Taxation and Finance, U.S. Supreme Court, Docket 13-259, Petition for Certiorari denied December 2, 2013