December 3, 2013

Ruling lets all states try to tax Web sales

The Supreme Court allows New York’s levy to stand. Under Maine laws, the state is losing millions.

Staff And News Service Reports

WASHINGTON — The U.S. Supreme Court let New York’s tax on Internet sales stand Monday, possibly clearing the way for a new revenue stream for all states.

Without comment, the high court decided not to hear appeals by and challenging a New York court ruling forcing them to remit sales tax the same way that in-state businesses do.

The effect could be felt far beyond New York, if it encourages other states to act. In fact, the decision might have made Monday “the last Cyber Monday without sales tax,” said Joseph Henchman of the Washington-based Tax Foundation.

It’s all part of a furious battle – including legislation in Congress – among Internet sellers, millions of buyers, brick-and-mortar stores, and states that are hungry for billions more dollars in tax revenue.

The National Council of State Legislatures estimates that states lost $23.3 billion in 2012 because they could not collect sales taxes on online and catalog purchases.

The court’s decision “allows states that have passed laws like New York’s to continue doing what they’ve been doing,” said Neal Osten, director of the council’s Washington office.

Web retailers generally have not had to charge sales taxes in states where they lack stores or any other physical presence. But New York and other states, including Maine, say that a retailer has a physical presence when it uses affiliates – people and businesses that refer customers to the retailer’s website and collect commission on sales. Such affiliates range from one-person blogs promoting the latest gadgets to companies that run coupon and deal websites.

Amazon and Overstock both use affiliate programs. Amazon has been collecting sales taxes in New York, even while fighting the state over a 2008 law that was the first to consider local affiliates enough of an in-state presence to require tax collection. Overstock ended its affiliate program in New York in 2008, after the law passed, and has ended its affiliate programs in other states that have tried to force it to collect sales taxes.

Without the affiliate programs, companies can sell in those states but don’t partner with local people and businesses that refer customers to their sites.

Michael Allen, Maine Revenue Services’ associate commissioner for tax policy, said the Legislature enacted a law this year that allows Maine to collect sales tax from out-of-state sellers that previously were exempt. Effective Oct. 9, the law expands the state’s definition of whether a business has a presence in Maine and will likely require such businesses to register with the state.

Amazon responded by severing ties with all of its Maine affiliates. By doing that, Allen said, Amazon established that it had no physical presence in the state so it was not required to collect sales tax.

The issue also involves Mainers who buy products online from out-of-state companies. Those purchases are subject to Maine’s sales tax, but the collection is left to Mainers, who are supposed to report those purchases on their state income tax returns.

In 2011, only about 9.5 percent of Maine tax filers reported and paid use tax for out-of-state purchases, according to Maine Revenue Services. That brought in about $2.8 million, but Allen estimates that Maine is losing about $20 million annually.

New York Attorney General Eric T. Schneiderman said, “Today’s Supreme Court decision validates New York’s efforts to treat both online and brick-and-mortar retailers equally and fairly, by requiring all retailers with a presence in our state to collect sales taxes.”

While the decision settles the issue for New York, legislatures and courts in other states have come to different conclusions – meaning some Americans will still get sales-tax-free Internet purchases from certain websites, while others won’t because of where they live.

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