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Amazon Challenges Supreme Court to Step Up to the Plate

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The question seems simple: Can a state require an online retailer to collect and remit sales and use tax? We have been taught in Quill, in order to enforce such a requirement, the company must have some physical presence in a state. Since 1992, however, what constitutes physical presence has been somewhat of a daunting task, especially since the advancement of the Internet over the past 20 years. Is a server the requisite physical presence? What if a company pays another to drive traffic to its website? Is that the same as having a salesman in a particular state? These are all questions at the forefront of the sales and use tax community over the past decade. And, during that time, the Supreme Court and Congress have balked at providing any guidance to any of these inquiries.

At the front of the debate are the big boys, Amazon and Overstock. Both companies have a strong market share in E-commerce and both use the affiliate or click-through program described above to generate traffic to their lucrative commercial websites. Many states, like New York, have enacted laws that require companies like Amazon and Overstock to start collecting tax in their states based on these programs and having sales over a certain threshold (usually $10,000).

Amazon and Overstock did not believe this type of law was constitutional. They both challenged large tax assessments in New York. Ultimately, the companies lost at the state’s highest court and have now filed a petition asking the Supreme Court to step up and take the case.

While the Supreme Court all but begged Congress to take a case in its opinion in Quill, it has not heard another sales and use tax case since Quill in 1992. Congress has made some progress by bringing forth the Marketplace Fairness Act, but has not successfully morphed the bill into a law. What could possibly be a better case for the Supreme Court to hear? After all, we finally have the biggest player in the online retailer debate, Amazon, and one of the largest and most legally respected states, New York, ready to duke it out. Is this finally going to be the one?

Many commentators believe the Supreme Court will punt to Congress again because this is truly a Congressional issue of the national economy. However, Congress has little to gain because it’s the states rather than the federal government that will benefit. In addition, many will view this as a new tax with no financial gain, and that is not a sound tactic from a political perspective. I truly hope the Supreme Court sees the importance of this issue and does what it is supposed to do — hear a court case. Whatever happens, I will be closely watching as a state and local tax attorney, and because our firm has been asked to participate by filing an amicus brief. Hopefully there is more to come!

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog .

Questions? If you have any questions please do not hesitate to contact him via email at or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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