Supreme Court won't weigh in on online sales tax debate

Though Amazon and Overstock.com filed a constitutional challenge to states collecting sales tax on online purchases, for now it looks as if the battle will be waged state by state.

Residents of New York, California, and 15 other states will still pay sales tax on online purchases, after the Supreme Court decided not to weigh in on the issue of states’ collection of sales tax on online purchases.

Amazon and Overstock.com filed a constitutional challenge to a 2008 New York State law that focused on collecting sales tax on online purchases. The Supreme Court said Monday it would not take the challenge, leaving the online sales tax debate up to the states, according to The Wall Street Journal.

The laws on online sales tax originated in New York, which aimed at collecting taxes as well as maintaining competition between local bricks-and-mortar shops that are held to local tax laws and national online retailers geographically free of local jurisdiction.

Similar laws later passed in 16 other states, including California and Texas.

Though Amazon and Overstock.com hoped to squelch the tax requirement through a federal decree, in Congress matters seem to be shifting away from the tech giants’ favor. A bill passed in the Senate earlier this year made it easier for states to collect online sales tax, but the legislation has stalled in the House because of pressure from online retailers and disapproval from conservatives.

Will this non-decision set a precedent? It may set a precedent that the Supreme Court will not get involved in state-level online sales tax games, though there are previous cases that local courts can look to for guidance.

Quill vs. North Dakota, a 1992 Supreme Court case, said that companies that did not have a “substantial nexus” in the states within which they were doing business did not have to collect sales tax, which is how Amazon an other retailers have skirted around the sales tax issue thus far. But that was well before online retailing, so far before that the justices likely didn’t have the foresight that something such as Amazon (or its potential drone program) could exist.

However, states such as New York have circumvented that dodge by saying Amazon’s use of local affiliates to fill orders counts as a presence in the state.