The US Supreme Court declined to hear a legal challenge brought against the affiliate nexus law of New York State by Amazon.com. A separate case by Overstock.com on the same issue met the same fate on Monday. Thus, e-retailers have no other option but to look to the Congress for any remedy.
And that might be hard to come by, as according to the National Council of State Legislatures, prohibition on collecting sales tax online and catalog purchases led to a total loss of $23.3 billion last year to the states.
The affiliate nexus law of New York allows state authorities to collect sales tax from internet retailers even if they do not have a physical presence in the state. And the Supreme Court’s refusal to revisit the issue which has already been decided in favor of the state by the lower and appeals courts, increases pressure on the Congress to create legislation making collection of sales tax mandatory for Internet retailers.
The issue of Internet retailers gaining unfair advantage against local brick-and-mortar businesses, and also causing loss of expected revenue to states by being able to evade sales tax, has been a contentious issue for long. Amazon, however, has maintained a stance where it says sales tax should be levied on Internet retailers on the federal level, otherwise business would become cumbersome and confusing to Internet retailers, who would have to play by the separate laws and rules of each state.
While the shock may be easily absorbed by giant Internet retailers like eBay or Amazon, those who would really be hurt by the change in favor of local taxation would be the small businesses and micro Internet retailers, who sell products across states.
While New York remains among the pioneers in taxing out-of-state internet retailers, more and more impoverished states are adopting the same stance and passing laws to tax internet retailers.
In its suit, Amazon had initially claimed that the affiliate nexus law violates the Commerce Clause of the U.S. Constitution by imposing taxes on out-of-state entities.