R.I.P., Sales Tax-Free Online Purchases

no sales taxThis holiday season will likely go down in history as the last in which a large percentage of Americans buy presents for their loved ones without paying sales tax.[fn1] So enjoy! 

Wait, though: why is it going to change? I mean, I know about the Marketplace Fairness Act. But even though it has passed the Senate, the House hasn’t brought it up yet, and what will happen to it in the House is anybody’s guess.

But even without the MFA, there’s Amazon.com. No, not the drones: the Amazon Tax. When last we left Amazon,[fn2] the New York Court of Appeals[fn3] had found New York’s Amazon Tax[fn4] constitutional, and Amazon had asked the U.S. Supreme Court to hear the case (and, ideally, overturn the New York court).

Well, on Monday, the Supreme Court said it wouldn’t hear Amazon’s case.[fn5] Which means that the New York Court of Appeals’s ruling stands. Which means that the Amazon Tax is constitutional and New York can require Amazon to collect New York sales tax.

The Supreme Court didn’t explain why it rejected Amazon’s petition for cert. Still, I imagine that states with a sales tax will see the Court’s denial as an implicit blessing of New York’s theory of sales tax jurisdiction. I would be entirely unsurprised if, between now and next December, many—if not all—states with a sales tax will enact an Amazon Tax.

Which is perhaps the worst thing that could happen to online retailers. Because each state can implement an Amazon Tax independently. They wouldn’t need to coordinate the base, the manner of calculation, or the manner of collection. Some may impose a floor, choosing not to tax, for example, any retailer with less than $1 million in revenue. Others, though, could tax all online retailers with sufficient contacts to the state, whether they had $100 or $100 million in revenue. Administrative costs of compliance could be crippling.[fn6]

The Marketplace Fairness Act, then, becomes a sane alternative; though Amazon already favors it, in the post-Monday world, the set of online retailers who support the MFA should expand.

[fn1] Technically, of course, consumers should be entirely indifferent; in most states, whatever sales tax the seller doesn’t collect is subject to use tax, which the purchaser is obligated to pay over to the state. But, despite states’ best efforts, use tax just doesn’t happen.

[fn2] And Overstock.com, though we don’t really talk as much about it.

[fn3] Confusingly enough, the highest state court in New York.

[fn4] So for a state to impose sales tax on an out-of-state seller, that seller must have some amount of presence in the state more than just advertising. New York decided that Amazon’s Associates program, which allows individuals (including New York residents) to sell through Amazon, created enough presence in New York to subject Amazon to New York’s sales tax.

[fn5] See pp. 3 & 11.

[fn6] This dystopian sales tax future wouldn’t apply to all retailers, of course. The DIY sales tax requires some sort of physical presence in a state; many sellers—especially small sellers—wouldn’t be subject to an Amazon Tax. Still, if physical presence can be imputed as a result of third parties, even small retailers would need to expend some resources in ensuring that they didn’t get captured by one or more of the 46 potential versions of the Amazon Tax.

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