WASHINGTON — Brick-and-mortar retailers, which have long pushed for Internet sales tax fairness, applauded the Supreme Court’s refusal on Monday to hear a case filed by Amazon.com and Overstock.com Inc. challenging New York State’s law on collecting taxes on Internet purchases.
While satisfied with the High Court’s decision, retail trade groups said more needs to be done and stepped up the pressure on Congress to pass legislation to level the playing field between online sellers and traditional retailers.
Amazon and Overstock filed petitions for a writ of certiorari in August, charging that New York’s sales tax law violated the Commerce Clause by imposing tax-collection obligations on out-of-state retailers that have no physical presence in the state. The Internet retailers argued in their Supreme Court petitions that they had no physical presence in New York and should be exempt from collecting taxes on purchases made by New York customers.
The Supreme Court refused to consider their argument, letting stand a ruling by the New York Court of Appeals. The appeals court ruled in March that Amazon and Overstock were subject to the sales tax requirements in New York because the online retailers had contracts with local affiliates, such as blogs that post links to the Amazon and Overstock Web sites.
The debate over taxing Web sales has taken place in Washington and around the country for more than a decade without any resolution, but states have been enacting their own laws to close what they say is a loophole created in 1992 in Quill v. North Dakota, a Supreme Court ruling that stated retailers were required to collect sales tax from out-of-state customers only if they have a “physical presence” in the customer’s state.
E-tailers have relied on that decision to avoid collecting sales tax on online orders. Brick-and-mortar retailers, including those with e-commerce sites, that are typically required to collect sales taxes in states where they have stores, argue that puts them at a competitive price disadvantage.
In the absence of federal legislation, some states began changing the definition of what constitutes a physical presence in order to recoup what state lawmakers argued was billions of dollars in lost revenue in uncollected sales taxes from online sellers.
The New York legislature added a provision to its law in 2008 requiring retailers to collect sales taxes if the merchant solicited business through an independent contractor or third-party representative under two conditions: if the retailer gave commissions to New York State residents for referring customers to the retailer, and if the referrals generated more than $10,000 of sales annually, according to court documents.
“The statute serves an important function in facilitating the collection of millions of tax dollars that would otherwise be lost each year,” attorneys for the New York State Department of Taxation and Finance argued in court documents. “Although both [Amazon and Overstock] allege they have no physical presence in New York, they rely on affiliate programs under which they pay hundreds of thousands of representatives across the country, including thousands in New York, to drum up sales.”
Amazon has agreed to collect sales taxes in a handful of states, including California, Texas and Pennsylvania.
In Amazon’s case in California, for example, under a 2011 bill the physical presence was established by an affiliate company that manufactures the Kindle e-book readers in California’s Silicon Valley. Amazon also has distribution centers in California, which fell under the new definition.
A broad coalition of retailers has been pressing Congress for years to step in and replace the piecemeal state approach with federal legislation because some online retailers are still exempt from the different state-by-state definitions of what constitutes “nexus” or a physical presence and are not obligated to collect and remit sales taxes.
In April, the Senate passed legislation known as the Marketplace Fairness Act that would allow states to collect sales taxes from out-of-state online sellers regardless of whether they have a physical presence in the state. The bill provides for a small seller exemption that prohibits states from requiring remote sellers with less than $1 million in annual nationwide remote sales to collect sales and use taxes.
The legislation stalled in the House. House Judiciary Committee chairman Bob Goodlatte (R., Va.) has released a set of broad, general principles that he will consider in crafting his own legislation, industry groups said. But gridlock in Washington has made passage of legislation difficult and industry groups are now pinning their hopes on the legislation advancing next year.
“States have essentially tweaked nexus [physical presence] laws to require companies like Amazon to collect,” said Jason Brewer, vice president of communications and advocacy at the Retail Industry Leaders Association. “New York changed the definition of physical presence and basically said if you have affiliates, like Web advertisers, in the state, that counts as a physical presence and you must collect sales taxes. New York was the first state law trying to deal with this and other states took a different approach where they went after more physical building definitions, like distribution centers, to constitute a physical presence.”
Brewer noted that not every state has a Amazon warehouse, which has led to a patchwork of state laws on collecting sales taxes from online sellers.
“In order to have a comprehensive solution, you have to have federal legislation,” Brewer said. “That is ultimately what the states want. It is what retailers want. Our goal is to make this the last holiday season where brick-and-mortar retailers compete on an unlevel playing field.”
Rachelle Bernstein, vice president and tax counsel at the National Retail Federation, said, “What we believe is that the same tax should be charged to the same product sold in the same location. Whether you order over your computer or telephone and have it delivered to you at your house or go to a local mall to get it, you are getting the same product and should be subject to the same New York [in this case] sales tax.”
Bernstein said Monday’s Supreme Court decision “clearly shows the need for federal legislation to address this issue because we’ve got all of these different affiliate nexus laws in various states. There is a real need for clarity in this area.”
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye
Did you know: @carlychaikin of "Mr. Robot" has been painting for about a decade? The actress, who plays Darlene on the show, is a self-taught artist who lists Salvador Dalí and Chuck Close as some of her idols. Chaikin told WWD that painting is a form of meditation for her — A much-needed one given the intensity of "Mr. Robot." See a piece Chaikin is working on at WWD.com (📷: @jilliansollazzo) #wwdeye