Supreme Court Sales Tax Decision Didn't Change Internet Taxation
NEWS ANALYSIS: The court told Congress it must fix the state sales tax mess through legislation, but that's unlikely to happen soon—unfortunately for online retailers.The word is all over the blogosphere and Internet news sites that the U.S. Supreme Court's decision not to hear the sales tax case between Amazon.com, Overstock.com and the state of New York somehow gives the go-ahead for Internet taxation. It does not. In fact, the Supreme Court chose to do nothing, reinforcing its earlier decisions on taxation. What the Supreme Court decided in Quill vs. North Dakota back in 1992 is that the U.S. Constitution's Commerce Clause says that one state can't tax activities in another state. This means that if you buy a book from Amazon, for example, your state can't place a sales tax on the book if Amazon is in another state. Over time, states have decided that if a company such as Amazon has any presence in the state, then it can levy sales taxes. This means that in the 16 states where Amazon has a business presence, customers pay sales tax. Amazon has a facility in Virginia where I live, so I pay sales tax on my purchases through Amazon. The state of New York, where Amazon has no facilities and no employees, decided that any partnership that Amazon might have in New York meant that it was in business there. This meant that any New York-based suppliers, including book companies, would trigger that exposure to sales tax. The state made a similar decision in regards to Overstock.com, which like Amazon has suppliers in New York, but no other presence.
This probably means that New York residents will end up paying sales tax on Amazon purchases, but that's still up in the air. This kind of thing has to go through a lot of lawyers before anybody pays anything.