Amazon Rejected By U.S. High Court On New York Sales Tax
03 December 2013
Posted by: Author: Greg Stohr
Author: Greg Stohr (Bloomberg)
The U.S. Supreme Court stayed out of
the multibillion-dollar fight over Internet sales taxes, leaving
intact a New York law that forces Amazon.com Inc. (AMZN) to collect
money from customers in that state.
Acting on one of the biggest online-shopping days of the
year, the justices made no comment in rejecting appeals by
Amazon and Overstock.com Inc. (OSTK), another Internet retailer. The
companies said the law, upheld by New York’s top court, violates
the Constitution by demanding tax collection from businesses
that don’t have facilities in the state.
States lose an estimated $23 billion a year in uncollected
sales taxes from web retailers. Although Amazon has agreed to
collect taxes in some states as it sets up distribution centers,
it has resisted efforts by others to impose sales taxes
unilaterally. New York’s measure is among a handful that have
been dubbed "Amazon laws” because they affect only the largest
The New York law "subjects Internet retailers to
significant burdens on pain of serious civil and criminal
penalties,” Seattle-based Amazon argued in its appeal. The
world’s biggest online retailer now collects taxes in 16 states.
The rebuff leaves it to Congress to craft a nationwide
approach to the sales-tax issue. Amazon supports federal
legislation that would explicitly let states require tax
collections by all online retailers above a certain size.
The legal dispute revolved around a 1992 Supreme Court case
involving a mail-order company. The court said retailers can be
forced to collect a tax only in states where they have a
The rise of the Internet has increased the stakes since
then, putting tens of billions of dollars at issue. New York
alone lost $1.8 billion in 2012 on Internet and catalog sales,
according to the National Conference of State Legislatures.
Although consumers are supposed to pay the taxes themselves, few
do unless the seller collects the money.
New York has a 4 percent statewide sales tax, and local
jurisdictions impose additional levies. In New York City, the
total tax rate is 8.875 percent.
Today’s Supreme Court action "validates New York’s efforts
to treat both online and brick-and-mortar retailers equally and
fairly by requiring all retailers with a presence in our state
to collect sales taxes,” New York Attorney General Eric Schneiderman said in a statement.
Under the New York law, retailers without a physical
presence in the state must collect tax if they use a local
resident to solicit business online. Amazon is subject to the
law because it gets business through New York-based affiliates,
paying them commissions for hosting online links to the
The New York Court of Appeals, the state’s highest court,
said affiliation agreements had the effect of creating an "in-state sales force.”
Amazon fell $1.32 to $392.30 at 4:30 p.m. in Nasdaq trading
in New York.
Overstock said in its appeal that the New York court ruling
"functionally abrogates the physical-presence requirement.”
Overstock suspended its own affiliates program in New York
when the law was enacted, sparing the Salt Lake City-based
discount Internet retailer from having to collect taxes.
Overstock was seeking to re-establish that program so it could
generate more business in New York and potentially other states.
Amazon and Overstock sued to challenge the New York law
soon after it was enacted. They argued that the measure violates
the Constitution’s commerce clause, which the Supreme Court
interprets to limit state taxing power. The court has said taxes
must bear a "substantial nexus” to activity within the taxing
Amazon has struck tax deals with some states as it adds
distribution centers that will let the company get products to
customers more quickly.
Those states include California, where the company agreed
to collect sales taxes after a one-year reprieve and dropped
efforts to repeal the tax measure through a referendum. Amazon
has since opened three distribution centers in California.
Nationwide, it has spent $14 billion and added 50 new facilities
At the same time, the company supports proposed federal
legislation that would let states collect taxes from online
retailers with at least $1 million in annual out-of-state sales.
"Amazon is in favor of having to deal with a single
bureaucracy rather than 50,” said Michael Pachter, an analyst
at Wedbush Securities in Los Angeles.
The Senate passed the Amazon-backed legislation May 6 on a
bipartisan 69-27 vote, and opponents vowed to fight in the
House. Other supporters include Wal-Mart Stores Inc. (WMT) and Best
The measure "would protect states’ rights to make their
own revenue policy choices while allowing them to collect more
than a fraction of the revenue that’s already owed,” Ty Rogers,
an Amazon spokesman, said in an e-mail.
The House Judiciary Committee, led by Republican
Representative Bob Goodlatte of Virginia, hasn’t held a hearing
or released a schedule for considering the measure.
Goodlatte said he wants changes to the Senate bill and he
released a set of principles in September. At the time, he said
he wanted the legislation to be so simple that it wouldn’t
require a small-business exemption.
"We wish the House was further along, but the same can be
said for just about any legislative initiative this year,” said
Betsy Laird, senior vice president of the International Council
of Shopping Centers.
Rachelle Bernstein, vice president and tax counsel at the
National Retail Federation, said she is hopeful that Congress
will pass a law this year or next.
"There was always a need for federal legislation to
provide some uniformity and simplicity to this area of the law
and that need is still there,” said Bernstein, whose group
represents Macy’s Inc. and The Container Store Group Inc.
EBay Inc. (EBAY), operator of the largest online marketplace,
opposes the legislation. The company didn’t take a position on
the Supreme Court appeals. Newegg Inc., which sells electronic
products, backed the Amazon and Overstock appeals.
The cases are Overstock.com v. New York State Department of
Taxation, 13-252, and Amazon.com v. New York State Department of
This article first appeared in bloomberg.com.