Exhibiting a fine sense of timing – and maybe to make a point -- the U.S. Supreme Court picked Cyber Monday to announce that it would not take a case challenging states’ ability to apply their sales taxes to online purchases.
One might surmise that the justices were telling online retailers that if they’re big and powerful enough to get their own named shopping day, they don’t deserve a sales tax advantage over their bricks-and-mortar competitors. Not in New York, anyway.
But as often happens when the high court chooses not to take a case, the consequences of Monday’s refusal to take up Amazon’s appeal of a New York appellate court’s decision are mixed and the message muddled. Left in force is a 1992 dawn-of-the-internet Supreme Court decision that says online retailers must have a physical presence in the state to be required to collect and remit state sales taxes.
The New York law, which was preserved by the high court’s inaction Monday, says that the presence of sales or advertising affiliates in a state is sufficient presence, or nexus, to make a sales tax collection requirement legally permissible. This year, the Minnesota Legislature enacted a requirement similar to New York’s.
But that leaves Amazon free to do what it did in Minnesota. Within weeks of the law’s enactment, it ended its relationship with its Minnesota-based affiliates, denying them revenue so that it could continue to dodge tax-collecting responsibilities. Nationwide, 45 states have sales taxes; Amazon collects them in only 16, Minnesota not among them. It's why the new "affiliate nexus" tax is expected to show very little new revenue for Minnesota when the next state revenue forecast is issued on Thursday.
Only Congress can bring uniformity and some needed fairness to state taxation of online retail sales. The U.S. Senate has passed the Marketplace Fairness Act that would allow states to collect sales taxes from online retailers with annual sales in excess of $1 million. That bill, which would have added add an estimated $23.3 billion to state coffers in fiscal 2012, is stalled in the U.S. House. The surge in online shopping that Cyber Monday brought this year will run up that number – and ought to run up congressional interest in that bill.