Supreme Court hears “Amazon tax” case. Issue remains unresolved
The U.S. Supreme Court is asked to take on 5,000 or more cases every year. The number they actually hear is between 100 and 150, so whenever a decision is made, these highly prioritized cases are bound to generate interest. That was certainly the case with the eCommerce community in early March when the highest court in the land made a decision on Direct Marketing Association v. Brohl, which is more popularly known as the Colorado “Amazon tax” case.
The case might not immediately gain much interest with the general public due to the complex nature of this sales tax issue, but it will surely impact consumers and the eCommerce industry as the decision opens the doors for district courts to hear cases related to online sales tax collection laws.
The reason the issue is complex is because sales tax laws differ in every state. For instance, Oregon doesn’t have a sales tax, while in other states, retailers are expected to play taxman – gather sales taxes from consumers and send it to the state. Some states will even allow the retailer to retain a fraction of the tax to cover administrative costs. The landscape for sales taxes changed considerably when consumers began making purchases over the Internet.
Instead of going down to the local brick-and-mortar store to make every purchase, stores which had established nexus within the state and collected sales taxes, consumers spend billions of dollars per year online. A majority of these online purchases allow the consumer to skip the sales tax process due to the fact that the eCommerce company has no physical presence or nexus within the consumers’ state. Naturally, states have watched their revenues from sales taxes slide as eCommerce is embraced by more and more consumers.
To regain footing, some states implemented what is being called “Amazon taxes,” named after eCommerce giant Amazon.com. Several states actually passed Amazon tax laws that allowed them to collect sales taxes from Amazon. Other states made deals with Amazon to collect sales taxes from individuals in states where the company does not have a physical presence.
Everything came to a head in 2010 when Colorado passed a law that requires online retailers to collect sales taxes from Colorado residents or make a report of the sale to the state so it could collect on those taxes. Groups like the Direct Marketing Association spoke out against the law after it was implemented in 2011 and went as far as to file a lawsuit in federal district court, seeking to invalidate the law. The long and slow slog to the Supreme Court came to an end March 3 with a unanimous ruling.
Unfortunately, the ruling is as complex as the issue at hand, but the takeaway is that it remains unresolved because the justices essentially sent it back to federal courts. However, Justice Anthony Kennedy’s decision on the matter should bolster state and local governments keen on collecting the tax.
“There is a powerful case to be made that a retailer doing extensive business within a State has a sufficiently ‘substantial nexus’ to justify imposing some minor tax-collection duty, even if that business is done through mail or the Internet,” Justin Kennedy explained in his concurring decision “After all, interstate commerce may be required to pay its fair share of state taxes.”
The eCommerce community will continue to watch the issue. In the meantime, if you’re having sales tax collection struggles of your own, make it easier on yourself by implementing a solution from Avalara, a company that specializes in making sales tax less taxing. Contact the team at NetSphere Strategies today, who has partnered with Avalara due to their expertise on the subject. Or, watch a video to see how it works.