Should sales tax be collected on electronic products or other products you purchase online? The answer remains unclear and the U. S. Supreme Court isn’t about to resolve the confusion, thus confirming that the court may feel that the remote seller collection issue is best resolved by Congress.

On December 2, 2013, the high court refused to hear the Amazon sales tax appeal. The appeal came as a result of a decision earlier in the year by the New York Supreme Court upholding the 2008 enactment of that state’s law requiring out-of-state internet sellers, without a physical presence in the state, must collect sales tax if they use an instate resident or entity to solicit business online. Amazon is subject to the law because it gets business through New York-based affiliates, paying them commissions for hosting online links on their behalf.

In 1992, the U.S Supreme Court Decision “Quill v. North Dakota” ruled that under the constitution’s commerce clause only retailers with a physical presence (nexus) can be required by that state to collect its sales taxes. The high court stated in the decision, however, that Congress could grant collection powers to the states is a clear invitation for the Congress to be involved.

What does the U.S. Supreme Court’s Court refusal to hear the Amazon appeal mean?
It means there is much more immediate need for Congress to enact federal legislation to provide clarity and simplicity in the collection of sales tax over the internet. Otherwise, confusion and frustration to retailers will continue due to outdated and inconsistent tax laws and regulations. In May of this year, the U.S. Senate passed a bill requiring internet sellers with one $1 million a year or more in sales outside their home states to collect each state’s sales tax. The U.S. House leaders have said they will propose their own bill rather consider the Senate passed bill. Thus far, nothing has happened in that chamber.

Since 2008, the following states have copied New York’s law, known as NY’s Amazon or “click-through nexus” law:

Arkansas
California
Connecticut
Georgia
Illinois
Kansas
Maine
Minnesota
Missouri
Pennsylvania
Rhode Island
Vermont

While the business community awaits Congress to take action, New York and the above-mentioned states, with the exception of Illinois, are currently enforcing their laws. In October of this year, the Illinois Supreme Court affirmed a lower court ruling that Illinois’ click-through nexus is preempted under the U.S. constitution due to the federal prohibition against discriminatory state taxes on electronic commerce contained in the Internet Tax Freedom Act (“ITFA”). In view of the court decision and that “ITFA” is scheduled to expire on November 1, 2014, the Illinois Department of Revenue will be reviewing options available to them regarding the click-through nexus law.

For now, sales tax relating to internet sales will continue to raise more questions than answers. Companies will need to decide whether to comply with individual state laws and collect the sales tax required, or take the risk and wait for further congressional action. If you need assistance or guidance, please contact Paul McVay of our State and Local Tax Group at (401) 274-2001, Ext. 1137.