Why Amazon and Overstock's SCOTUS Petitions Matter to You

By William Peacock, Esq. on August 30, 2013 | Last updated on March 21, 2019

Two things in life are certain: death and taxes. Except when they are not.

For the longest time, Amazon's clearest advantage over brick and mortar stores was the lack of sales tax. That advantage, however, has been slowly dissipating, at the company has clashed with multiple states over attempts to force the online retailer to collect taxes from customers, and in many cases, relented.

Overstock is more of the same story. Now, both companies, facing different sales tax rules in each state, and facing different rules than their competitors, have petitioned for a writ of certiorari with the Supreme Court.

The New York Case

Both Amazon and Overstock maintained affiliate programs that would pay commissions to websites that sent traffic their way. In 2008, New York added Tax Law § 1101 [b][8][vi], which subjected sales to state taxes if the cumulative payouts for these types of arrangements exceeded $10,000.

The odd advertising/solicitation/affiliate law differs from that of every other state, and is different than the U.S. Supreme Court's physical presence test that has been the law since 1992. In upholding the law, the New York Court of Appeals stated that the "world has changed dramatically in the last two decades, and it may be that the physical presence test is outdated."

That ruling, and Amazon and Overstock's assertions that the New York law is unconstitutional, form the basis of their petition.

Physical Presence Test

In 1967, the Supreme Court held that only businesses with a "substantial nexus" within a state were subject to state taxation. The ruling was extended in Quill Corp. v. North Dakota, where the court devised the physical presence test, and held that floppy disks did not suffice.

The law led online retailers to avoid expanding their physical presence into states with sales tax, though as online sales have increased, states have made fervent efforts to tax the online retailers. One such method, which the Supreme Court mentioned explicitly in Quill, was federal legislation.

Marketplace Fairness Act of 2013

The most recent effort to clarify online sales tax rules is the Marketplace Fairness Act of 2013, which passed the Senate, and has collected dust since. It would subject all online sales, by all companies, to state sales tax. Amazon, wishing for an even playing field with smaller competitors, has supported the law.

Your Company

Whether your company buys online goods or sells them, this battle will impact you in the near future. If the Supreme Court takes the case, and upholds New York's odd law, the tax picture becomes much more complicated. If Congress passes the pending legislation, things become simplified, yet likely more expensive.

Certain taxes, or cheaper office supplies? We're not sure which one we'd like more.

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