December 4, 2013

Court decision opens door for more taxes on online purchases

Congress could pass a federal law allowing states to collect sales tax on all purchases, including online, catalog and in person.

By J. Craig Anderson
Staff Writer

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Chris Bowe, co-owner of Longfellow Books in Portland, says Maine’s government needs the millions of dollars in sales taxes that many online retailers still don’t have to collect.

Gordon Chibroski/Staff Photographer

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Other groups, including some small businesses, would benefit from the change in various ways. Maine, for instance, would recoup an estimated $20 million a year in sales tax from out-of-state purchases, according to Maine Revenue Services.


In the case known as LLC v. New York State Department of Taxation and Finance, the online retailer sued New York over its law that forces online retailers to collect the state sales tax if they operate affiliate-marketing programs in the state. Such programs allow individuals and businesses to earn commissions by advertising or linking to the online retailer from their own websites.

The New York law posits that if an online retailer has a marketing affiliate in the state, that meets the Supreme Court’s definition of a physical presence.

Amazon challenged New York’s position on constitutional grounds., another online retailer that has an affiliate-marketing program, also challenged the law.

After a New York court ruled against the online retailers, they petitioned the Supreme Court to overturn the ruling. On Monday, the Supreme Court decided not to take up the case, thus allowing the law to stand as written.

The law that Maine passed this year is functionally identical to New York’s law. Eleven other states have such laws.

Rather than challenging the Maine law in court, Amazon and Overstock discontinued their affiliate marketing programs in Maine, eliminating the physical presence that would have required sales tax collections. That was a blow to many small businesses that had been earning revenue through the affiliate program.

It also rendered the new law somewhat useless, since Maine still receives no sales tax revenue from the two major e-commerce companies. Bowe, the bookstore owner in Portland, said that uncollected tax represents “millions and millions of dollars, which we need.”


Although there is no guarantee it will pass, the federal Marketplace Fairness Act has a broad range of supporters, including brick-and-mortar retailers, Gov. Paul LePage and even Amazon.

The law would require states to simplify their sales tax laws and allow them to tax Internet sales by companies with more than $1 million in annual revenue.

Amazon officials have said repeatedly that their objection to the existing state tax laws is based on the difficulty of setting up systems to properly charge customers in all of the nation’s roughly 9,600 state and local sales tax jurisdictions. The challenge would be so daunting that it likely would put smaller online retailers out of business, they have argued.

Amazon founder Bezos has said he would prefer to have the federal law pass with its requirement for a simpler sales tax structure, rather than have states enact their own e-commerce tax laws one by one.

Company representatives have said that if the federal law passes, they will reinstitute the affiliate marketing program in Maine and other states and start collecting state sales taxes.

Jason Michaud of Portland said Tuesday that an added state sales tax would not alter his buying online. He said he uses e-commerce primarily to buy food and other items for his dog.

“I like the convenience of it,” he said. “I don’t have to leave the house, and it comes right to your door.”

But Fran Houston of Portland, who uses the Internet to buy big items such as computers and other electronics, said a sales tax on online purchases would be a major deterrent for her.

She said the price difference on those items would be significant if Maine’s 5.5 percent sales tax were added.

Houston said she enjoys the convenience of buying online, but that doesn’t stop her from shopping for some items the old-fashioned way.

“There’s times when I want to buy in little shops,” she said.

J. Craig Anderson can be contacted at 791-6390 or at:

Twitter: @jcraiganderson

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