Ironically, the U.S. Supreme Court chose Cyber Monday, which is swiftly becoming the busiest day of the year for many online retailers, to issue its refusal to hear the latest in a string of cases dating back decades regarding whether or not sellers must collect sales taxes when they engage in interstate commerce.
While the cases of old dealt with the transport of goods across state lines and mail-order sales more specifically, the basic question, even when applied to internet commerce and online sales tax as it exists today remains the same…
Under what circumstances is it necessary for the sellers of goods to collect state sales tax when the goods that they sell are being sold out of the state in which the seller resides, or at the very least has some physical presence?
It’s a good, yet extremely complex, question — one that doesn’t seem headed for unilateral resolution anytime soon, especially given Monday’s so-called non-decision. The New York State Online Sales Tax Debate
The Supreme Court’s announcement that it will steer clear of this most recent case altogether constitutes a de facto decision to uphold a 2008 New York Court State of Appeals ruling requiring online retailers like Amazon to collect sales tax from their customers in the state of New York, no matter what the circumstances.
Amazon, along with its smaller competitor Overstock, was challenging that decision in this latest case by claiming that neither retailer has what reasonably could be referred to as a “physical presence” in the state enough to warrant such compliance. As of now, the basic rule is that states may not collect taxes from companies that do not have some physical presence in their state.
However, given that state budgets are so tight right now, that basic premise is being challenged all over the place and for a host of reasons. Primary among them is the argument by brick-and-mortar stores that online retailers are at a huge competitive advantage given that they all too often do not have to collect sales tax on the goods that they sell.
And even in cases where they should, many of them just plain don’t…and they get away with it too. Why? With fifty states, all with individual tax rates in the mix — not to mention use taxes and what all they entail, it’s all a big mess. One that is too big to regulate with any degree of certainty, at least as it stands right now.
Also in the mix of challenges is the whole debate over what constitutes any one business’ “physical presence” in a given state. According to the 2008 ruling, Amazon must collect sales taxes on purchases made by New York residents because, while it doesn’t have a home office, distribution center or even a warehouse in the state, it does partner with N.Y.-based specialized retailers to fulfill orders on some items. This, the Court said, constitutes an “in-state sales force” of sorts.
Writing for the majority in that case, Chief Judge Jonathan Lippman conceded that the physical presence litmus test is an approach that may be outdated. “The world has changed dramatically in the last two decades,” he said. “An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet.”
He went on to state that the question perhaps would be an appropriate one for the U.S. Supreme Court. Obviously, the Court would beg to differ given Monday’s announcement.
An Intractable Problem with No Easy Solutions
For now, there are no easy solutions where the collection of online sales tax across state lines is concerned.
While there was some encouraging movement in the U.S. Senate on this issue in the last year as efforts to create some sort of unified policy across all fifty states seemingly met with a fair amount of support, that has now been overshadowed by more squabbling.
In fact, that development triggered a groundswell of somewhat intractable debate, primarily in the House, where a number of additional bills both for and against various aspects of the many challenges posed by online interstate commerce are in the offing.
At the end of the day, most agree that the need for federal legislation of some kind to resolve the issue once and for all is needed, but simplicity and uniformity of any kind is hardly the order of the day in Congress right now. This we all know too well.
So the debate goes on, and the uncertainty about who is paying what, how, when and to where or whom on any given day where the sale and purchase of goods online is concerned remains an enigma of the highest order.
Click if you are interested in tax or accounting business opportunities. And you can read more about these latest developments on this issue now at:
And for more on BusinessOpportunity.com’s past coverage on this issue:
The Amazon Tax Debate: Where Do You Stand? January 2011
Online Shopping Tax Debate Heats Up Once Again, February 2013