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US Supreme Court says 'no sale' to Amazon's New York sales tax appeal

Online sellers must collect tax like brick and mortar retailers

Internet Security Threat Report 2014

The US Supreme Court has declined to intervene in a long-running spat between Amazon and the State of New York over collection of sales tax for online purchases, Bloomberg reports.

The decision means the web retail giant has exhausted its legal options, and the law requiring it to add sales tax to purchases by customers in the Empire State will stand.

The New York State statute was signed into law in early 2008 by then-governor David Paterson, having first been proposed by Paterson's predecessor, Eliot Spitzer, a former state attorney general.

Amazon wasted no time challenging the law in state court, claiming that it violated key clauses of the US Constitution governing interstate commerce.

The e-tailer argued that the Supreme Court has previously held that businesses are only required to collect sales taxes for states in which they have a physical presence – and Amazon has no offices or warehouses in New York State.

But Paterson and the law's supporters countered that countless independent resellers are operating in New York while using Amazon's website and affiliate program to advertise and sell their wares. Because Amazon receives a cut of those sales, they argued, it in effect has a presence in the state.

A New York Supreme Court judge agreed with the state's position in 2009, and Amazon has been pursuing appeals ever since, eventually taking the matter all the way to the highest court in the land.

But the US Supreme Court justices alone decide whether they will hear any specific case, and by rejecting Amazon's petition without comment, they leave Jeff Bezos & Co. with no further venues in which to appeal the earlier decision.

The Supremes' refusal to hear Amazon's case also puts the kibosh on a separate suit brought by e-tailer Overstock.com, which went as far as to cut ties with approximately 3,400 New York–based affiliates in a fruitless attempt to "send a message" to New York State lawmakers.

Amazon hasn't gone that far yet. In fact, it decided to grin and bear a similar law that went into effect in California in 2012, and it now collects taxes in a total of 16 states.

But what Amazon really wants is a simpler tax structure that would allow it to collect sales tax at a single rate for each state. To that end, it has backed the so-called Marketplace Fairness Act (MFA), which would establish a new tax regime specifically for online businesses.

Under the current system, individual cities and municipalities are each allowed to add their own taxes to purchases by local residents, meaning large retailers like Amazon must potentially collect taxes for thousands of separate jurisdictions. The MFA – which has already passed the Senate but has yet to clear Congress' lower house – would force states to streamline their tax laws to accommodate online sellers.

In the meantime, Amazon has not said what action it will take in the wake of its snubbing by the Supreme Court, but it seems likely it will continue to do business in New York, the nation's third most populous state.

At the time Governor Paterson approved the law, it was estimated that taxes collected by Amazon and others would provide New York with an additional $50m in annual revenues. ®

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