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Could a Colorado tax case raise fees for online shopping?

The US Supreme Court rejected a case Monday that could encourage more states to collect sales taxes from online purchases.

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    An online shopper searches different sites. Buying things online could get pricier after the US Supreme Court rejected a Colorado case Monday that could ultimately lead to states collecting billions of dollars in sales taxes lost to increasingly popular internet retailers.
    Wilfredo Lee/AP
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The US Supreme Court let stand on Monday a Colorado law with implications for internet retailers – and shoppers looking for a bargain online.

The law, a variation on what has been dubbed the “Amazon tax,” requires online retailers to notify customers in Colorado how much they owe in sales taxes to the state, and report their purchases – or collect the state’s sales tax directly from those customers.

The Court’s refusal to hear a challenge to the law – while not endorsing it either – could embolden proponents of state-level efforts to collect state sales taxes from online shoppers. At least three other states, including Louisiana, Oklahoma, and Vermont, could see similar tax laws take effect.

Max Behlke, director of tax and budget policy at the National Conference of State Legislatures, told The Denver Post after the ruling that it could invite more state-level changes to online tax policies, which make up a significant part of many states’ budgets.

“Other states, which have seen their revenue decline in sales tax, would be more apt to introduce and enact legislation like Colorado’s (law),” Mr. Behlke told the paper. 

The Data & Marketing Association, which had challenged Colorado’s law after it was passed in 2010, made a similar prediction in expressing its frustration with the ruling.

“We are disappointed the Supreme Court did not take the case and are concerned it will only encourage other states to adopt similar laws and regulations that are designed to put arbitrary burdens on out-of-state sellers,” the group said in a statement. 

As rules that require online shoppers to pay state sales tax on purchases generally go ignored, state governments have long tried to model legislation that would allow them to capture tax dollars from their residents when they purchase from retailers without brick-and-mortar operations in the state. In Colorado, state officials estimate that it could be missing out on some $172.7 million in revenues per year.

Such laws get their nickname from Amazon’s own countering of such efforts, as the Associated Press wrote in 2015, when a South Carolina sales-tax break granted to Amazon expired:

For years, the Seattle-based company fought collecting sales taxes from its customers. The U.S. Supreme Court has twice ruled – in 1967 and 1992 – that a state can't require a company to collect and remit the tax unless it has a "physical presence" in the state. 

As Amazon expanded, rather than collect taxes in states that tried to force it, the company severed ties with affiliates and scrapped plans for distribution centers. South Carolina was among 10 states that gave Amazon a temporary tax reprieve in exchange for jobs and investment, Behlke said.

But on New Year's Day [in 2015], South Carolina joins 26 states where Amazon, the heavyweight of online retailing, collects the tax, according to the company's website. Five states don't have sales taxes. 

George Isaacson, a constitutional law professor at Bowdoin College who represented the Data & Marketing Association in the Colorado case, told the Associated Press that the Court may wait for other states to copy Colorado before ruling definitively.

"Colorado was the first state to pass such a law, and the Supreme Court may be waiting to see how other state legislatures and lower courts deal with this type of highly controversial state legislation before addressing the constitutional issues," Mr. Isaacson told the AP in a statement. 

This report contains material from the Associated Press.

 
 
 

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