When the U.S. Supreme Court handed down a ruling more than two decades ago that limited states’ powers to compel out-of-state sellers to collect sales tax, the justices noted that the underlying issue was "not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve."
This week, the nation’s highest court said essentially the same thing–by saying virtually nothing at all. On Monday, the justices declined to take up a challenge filed by Amazon.com and Overstock.com to a New York law put on the books in 2008.
This puts the issue squarely back in the hands of Washington lawmakers. Don’t hold your breath, though.
The problem is not lack of legislation. The proposed federal Marketplace Fairness Act would do what Amazon and many traditional retailers want: create a framework for simplified multistate sales tax collection. No, the real problem is the usual one-politics.
Odds seemed to favor Supreme Court consideration of the matter, especially after the Illinois Supreme Court this fall took the opposite position of New York’s Court of Appeals. But that didn’t happen.
The 2008 New York law was crafted to work around the Supreme Court’s 1992 Quill v. North Dakota ruling, which held that out-of-state retailers with no physical presence in a state cannot be forced to collect sales tax.
Though Amazon had no stores or other facilities in New York, it did have thousands of in-state "associates," or independent website operators who post links to products on Amazon’s site. The law revised the definition of "physical presence" to include any vendor paying New York residents to solicit business here.
Without a national framework, the proliferation of state laws will place an unreasonable burden on Web merchants. The Marketplace Fairness Act also contains an important "small seller exception" that Amazon estimates would exempt more than 99 percent of online sellers.
The Senate has passed the bill, but House Republicans object to "another new tax"–which, of course, it’s not, because customers already are supposed to pay the applicable taxes on items purchased (though most do not).
Congress can resolve this issue, creating a level playing field and helping states collect much-needed revenues. And it should.
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