Amazon Rejected by U.S. High Court on New York Sales Tax

Bloomberg

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The U.S. Supreme Court stayed out of the multibillion-dollar fight over Internet sales taxes, leaving intact a New York law that forces Amazon.com Inc. to collect money from customers in that state.

The justices Monday rejected appeals by Amazon and another Internet retailer, Overstock.com Inc., which said New York is violating the Constitution by demanding tax collection from companies that don't have facilities in the state. New York's top court upheld the state law.

States lose an estimated $23 billion a year in uncollected sales taxes from web retailers. Although Amazon has agreed to collect taxes in some states as it sets up distribution centers around the country, it has resisted efforts by others to impose sales taxes unilaterally. New York's measure is among a handful that have been dubbed "Amazon laws" because they affect only the largest online sellers.

The New York law "subjects Internet retailers to significant burdens on pain of serious civil and criminal penalties," Seattle-based Amazon argued in its appeal. The world's biggest online retailer now collects taxes in 16 states.

In 1992, the Supreme Court said in the case of a mail-order company that retailers can be forced to collect a tax only in states where they have a "physical presence."

The rise of the Internet has increased the stakes since then, putting tens of billions of dollars at issue. New York alone lost $1.8 billion in 2012 on Internet and catalog sales, according to the National Conference of State Legislatures. Although consumers are supposed to pay the taxes themselves, few do unless the seller collects the money.

Level Field

New York said in court papers that its 2008 tax law "seeks to restore a level playing field between in-state brick-and-mortar stores and their out-of-state Internet-only counterparts."

Under the New York law, retailers without a physical presence in the state must collect tax if they use a local resident to solicit business online. Amazon is subject to the law because it gets business through New York-based affiliates, paying them commissions for hosting online links to the retailer.

The New York Court of Appeals, the state's highest court, said affiliation agreements had the effect of creating an "in-state sales force."

Overstock said in its appeal that the New York court ruling "functionally abrogates the physical-presence requirement."

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