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‘E-tailers’ losing fight on sales tax

Thursday, April 4, 2013
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For years, bricks-and-mortar retailers have groused about the unfair advantage their e-commerce brethren had in pricing, particularly when it came time to tally the bill and pay the sales tax.

Based on a 1992 U.S. Supreme Court decision, “remote sellers” — mail-order, telephone and now, Internet merchants — don’t have to collect and remit sales taxes in states where they lack a physical presence, such as a store, warehouse or corporate office.

But that’s about to change.

Last week, New York’s highest court, the Court of Appeals, ruled that the state’s so-called Amazon Law is constitutional. Soon, it could be eclipsed by federal legislation known as the Marketplace Fairness Act.

Internet sales have grown rapidly over the past decade but states, which rely on sales taxes for about a third of their annual tax revenue, have felt their hands tied by the Supreme Court.

In 2008, though, New York passed a bill dubbed the Amazon Law to require that online retailers collect sales taxes if they have “affiliates” in the state — third parties that agreed to place links on their own websites to the giants’ sites in exchange for a commission on any sales made.

New York decided the affiliates were akin to a physical presence, and so the out-of-state e-tailers should pony up sales taxes when referrals by affiliates yielded more than $10,000 in sales in a 12-month period.

Amazon.com and Overstock.com sued, saying the law was a blatant attempt to skirt the Supreme Court ruling and that only Congress could regulate interstate commerce. But a dozen other states followed New York’s lead with their own Amazon Laws, creating a messy hodgepodge for the e-tailers.

That’s when momentum began to build for simplifying the rules under which 45 states and some 7,600 localities collect sales taxes.

Under the Marketplace Fairness Act, Congress would empower state and local governments to collect a sales tax on any online purchase — but only after they standardized their sales tax laws to make multistate collection easier on the e-tailers.

What’s at stake? Some $23.2 billion in uncollected sales and use taxes from online transactions in 2012, according to projections made by three professors at the University of Tennessee. They estimated e-commerce sales at $4 trillion last year.

The Marketplace Fairness Act still needs to wend its way through the House and Senate before it becomes law. But a token show of support for the legislation in the Senate last month was seen as positive.

Besides, even Amazon sees the handwriting on the wall.

While the Internet giant argued before the Court of Appeals that New York’s Amazon Law violated the commerce clause of the U.S. Constitution, it’s OK with Congress setting the ground rules.

At a hearing last summer on the Marketplace Fairness Act, Amazon’s vice president for global public policy got behind the legislation.

“The constitutional limitation on states’ authority to collect sales tax is at the core of our nation’s founding principles,” testified Paul Misener. “For this reason, Amazon has steadfastly opposed state attempts to require out-of-state sellers to collect, absent congressional authorization.” But with the Marketplace Fairness Act, Congress would help states adopt sales tax collection reform that would “simply allow the states to collect more efficiently the billions of dollars of uncollected sales/use tax revenue already owed. … Amazon has long supported an even-handed nationwide framework for sales tax collection, and only Congress may create this framework,” Misener said.

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at marlenejkennedy@gmail.com.

 
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