On Monday, December 2, in a resounding victory for sales tax fairness proponents, the United States Supreme Court said it would not hear a legal challenge to New York State’s affiliate nexus law, which was brought by Amazon.com and Overstock.com. The two retailing giants brought the case to the Supreme Court after the New York State law was upheld in state court three times, despite repeated challenges from Amazon and Overstock.
“It’s heartening that the U.S. Supreme Court’s decision has put to rest any legal question as to a state’s ability to collect sales tax on Internet sales,” said ABA CEO Oren Teicher. “And while we continue to strongly support a federal solution to sales tax fairness, today’s action makes clear that individual states can enact legislation to level the playing field.” A federal bill, the Marketplace Fairness Act of 2013, passed the U.S. Senate by an overwhelming margin this year, but the U.S. House of Representatives has not yet held a hearing on sales tax fairness.
New York State’s law, passed in 2008, requires remote retailers with online affiliates in the state doing $10,000 or more in annual sales to collect and remit sales tax to the state. As of August 2013, New York’s law resulted in the collection of roughly $500 million in state and local sales tax that would have gone uncollected.
In March 2013, the New York State Court of Appeals ruled 4–1 in favor of the state’s sales tax fairness law, dismissing arguments made by Amazon and Overstock that the law was unconstitutional. Both companies argued that their online affiliates were not sales agents but were in fact advertisers, despite the fact that their affiliates worked for commission.
In the New York appellate court decision, Chief Judge Jonathan Lippman wrote: “[T]hrough this statute, the legislature has attached significance to the physical presence of a resident website owner. The decision to do so recognizes that, even in the Internet world, many websites are geared toward predominantly local audiences — including, for instance, radio stations, religious institutions and schools — such that the physical presence of the website owner becomes relevant to Commerce Clause analysis…. Essentially, through these types of affiliation agreements, a vendor is deemed to have established an in-state sales force.”
In August, Amazon and Overstock filed papers with the U.S. Supreme Court, arguing that that they should not be required to collect and remit in the state since they do not have substantial nexus, as reported by the Wall Street Journal.
The Supreme Court’s rejection of the retailers’ challenge will likely prompt more states to pursue affiliate nexus laws, the Associated Press speculated, noting that about 20 states now have affiliate nexus laws.