US - Federal Solution Sought For Disputes Over E-Commerce Law: Taxes
19 November 2013
Posted by: Author: Michael Bologna
Author: Michael Bologna
A thicket of state laws imposing
sales taxes on electronic commerce is creating pressure for
federal intervention to end the squabbles between states and
online merchants, a lawyer monitoring the issue said.
The federal action may come on two fronts -- in the U.S.
Supreme Court and from Congress, said Kelley C. Miller, an
associate with Reed Smith LLP in Washington, Bloomberg BNA
The court is likely to review conflicting legal precedents
on the constitutionality of so-called Amazon tax laws -- a
reference to the online merchant -- that some states have
adopted, Miller said during a Nov. 12 teleconference titled
"Clouds, Codes and Crunching Numbers.”
The disputed laws assert that marketing businesses within a
state’s boundaries with websites directing online shoppers to
retailers represent a sales presence for remote merchants such
as Amazon.com Inc. (AMZN) The states say this gives them authority to
order the merchants to collect sales tax for purchases made by
their residents. The laws are also known as "affiliate nexus”
Examples of the targeted marketing businesses include
Roscoe, Illinois-based FatWallet.com and Chicago-based
"I think it is very accurate to say online merchants, e-merchants, are certainly watching to see what happens in the
aftermath” of state court rulings that sent mixed signals "to
see if the Supreme Court will step in and ascertain a direction
on what many think is a patchwork of state laws that look at
web-based or e-commerce transactions.”
On Capitol Hill, Miller said Congress is edging closer to
granting states the power to require remote sellers to collect
sales taxes for them at the time of purchase. A measure known as
the Marketplace Fairness Act that passed the Senate in May also
would impose a framework for harmonizing state sales tax rules
to reduce collection burdens on retailers.
The focus on sales taxes has intensified with the growth of
e-commerce, which in the U.S. totaled $64.8 billion during the
quarter that ended June 30, according to Census Bureau
estimates. That figure represented an 18.4 percent increase from
2012’s second quarter, with e-commerce accounting for 5.8
percent of the roughly $1.13 trillion in all of the period’s
retail sales, the bureau reported. E-sales accounted for 5.1
percent of the total in last year’s second quarter.
States lose an estimated $23 billion annually in
uncollected sales taxes.
Miller said 20 states have enacted affiliate nexus tax laws
and another 13 are considering such action. The laws have been
challenged by retailers, including Amazon and Overstock.com
Inc. (OSTK), and organizations such as the Performance Marketing
Miller said conflicting legal rules have emerged from New
York and Illinois, setting the stage for the potential Supreme
In March, the New York Court of Appeals upheld the
constitutionality of that state’s affiliate nexus law, finding
no conflict with the U.S. Constitution’s commerce clause as
argued by lawyers for Overstock and Amazon.
The Illinois Supreme Court came to a different conclusion
when it voided the state’s affiliate nexus law, finding that the
federal Internet Tax Freedom Act preempts the state from
imposing a prohibited, discriminatory tax on e-commerce. The
Illinois court didn’t address the commerce clause issue.
Miller said Overstock and Amazon have filed petitions
seeking Supreme Court review of the New York ruling. While
Illinois officials haven’t yet expressed their intentions,
Miller said most of those following that case expect the state
to seek review as well.
Miller said the Senate-approved measure to permit states to
impose a sales tax on e-commerce "has not been moving as
quickly as proponents of the bill had wanted it to move.”
"It also has a very strong, centralized opposition to its
passage,” including from elected officials in states that don’t
have any sort of sales tax, she said.
One strategy for passing the measure, whose backers include
Wal-Mart Stores Inc., this year is to tack it onto annual
appropriations bills, Miller said. If that doesn’t happen,
2014’s midterm elections could cloud passage next year because
the measure would face criticism as a "new tax,” she said.
Still, she predicted it would eventually become law.
"There is still a great groundswell of support for federal
sales tax legislation,” she said. "I would agree with the body
of observers who say it is not question of ‘if’ this legislation
pass, but ‘when’ it will pass.”
This article first appeared in bloomberg.com.