August 30, 2013, 10:18 AM

Amazon and Overstock take tax fight to the U.S. Supreme Court

The e-retailers want the U.S. Supreme Court to overturn a New York ruling.

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After failing in March to persuade New York State’s top court to overturn a state law that ties sales tax collection to in-state affiliate sites, online retailers Amazon.com Inc. and Overstock.com Inc. are seeking a better deal from the U.S. Supreme Court.

“New York’s courts made a bad law that ignored the U.S. Supreme Court’s precedent regarding retailers’ responsibility in collecting sales, and we have a higher hope that Supreme Court justices will follow prior Supreme Court law,” says Jonathan Johnson, executive vice chairman of Overstock. The U.S. Supreme Court ruled in 1992 that states can require retailers to collect sales tax only when retailers have an in-state physical presence, such as stores or distribution centers.

Overstock filed a petition with the Supreme Court last Thursday, followed by a petition filed by Amazon on Friday. Both retailers want the high court to review a March 28, 2013, decision by the New York State Court of Appeals, the state’s highest court, that upheld a lower court ruling in favor of the state’s so-called Amazon Tax law. Technically speaking, each retailer has filed a petition for a “writ of certiorari,” which is a request to have the high court review the lower court’s ruling.

That law, which New York enacted in 2008, requires online retailers to collect sales tax from New York residents if the merchants get sales leads from consumers clicking links on affiliate web sites based in New York State, such as information sites or blogs. The state contends that such arrangements with affiliates amount to an in-state physical presence or nexus in legal terms, making a retailer responsible to collect sales tax.

An Amazon spokesman declined to comment on the retailer’s petition, citing “a long-standing company policy of not commenting on active litigation.” Following the court defeat in March, Amazon said the state’s Court of Appeals ruling “conflicts” with the U.S. Supreme Court’s precedents, but gave no indication that it would appeal the ruling.

Johnson, however, repeated this week what he said in March, that the U.S. Supreme Court would be more likely than New York’s courts to consider views opposing the connection between web site affiliates and nexus. “To get a fair hearing in court, we have to go to the U.S. Supreme Court,” he says. 

Overstock is No. 31 in Internet Retailer 2013 Top 500 Guide; Amazon is No. 1.

The September issue features an in-depth look at sales taxes for e-retailers. Subscribe for free here.

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