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Supreme Court declines to rule on state Internet sales-tax law

By Nick Bullock
Published: December 2, 2013
Amazon Prime Air
Amazon is exploring the use of drones for a same-day delivery service it's calling Prime Air.
Photo by YouTube
The U.S. Supreme Court announced today that it won’t rule on states’ efforts to force Internet retailers to collect and remit sales tax in states where they don’t have a physical presence.

The court declined to hear cases from online retailers Amazon and challenging a New York Court of Appeals ruling that upheld a 2008 state law requiring the collection of sales tax by online retailers.

With the U.S. Supreme Court removing itself from the debate, the focus turns back to Congress and the Marketplace Fairness Act of 2013, passed by the U.S. Senate in May. The House of Representatives has not yet voted on the legislation, which would allow states to require Internet retailers to collect and remit state sales tax even if those retailers do not have a physical presence, or nexus, in that state.

Brick-and-mortar retailers generally support such legislation, stating they are at a disadvantage when competing against online retailers.

“I would say [Internet sales tax legislation] factors heavily into whether a brick-and-mortar store can be competitive,” said National Retail Hobby Stores Association President Bruce Throne in May. “It should help brick-and-mortar stores level the playing field that little bit more.”

The U.S. Supreme Court decision came just a day after the news that the online mega-retailer Amazon is exploring same-day delivery service using drones, which the company is calling Prime Air, CEO Jeff Bezos said Dec. 1 on the CBS television program 60 Minutes.

Meanwhile, lawmakers continue to explore changes to any potential Internet sales tax legislation.

A November report by the Small Business Association analyzed the impact of a small seller exemption (SSE) to any Internet sales tax legislation. The report concluded that brick-and-mortar retailers would continue to be at a disadvantage relative to small online retailers if an SSE provision were added to an Internet sales tax law. The report also stated that although an SSE provision would reduce administrative and compliance costs of smaller online retailers, it would also reduce the potential revenue gained by state and local governments.

Currently, state and local sales tax laws apply to online sales, but online retailers aren’t required to collect and remit those taxes unless they have a physical presence in a state. Consumers are supposed to pay those sales taxes each year, but few do.