States' online 'Amazon tax' fight may land in U.S. Supreme Court -lawyers

Reuters

By Patrick Temple-West

WASHINGTON, Oct 21 (Reuters) - Diverging high court rulingsin New York and Illinois over 'Amazon taxes' point to a possibleU.S. Supreme Court case to settle questions about the legalityof states taxing online retail sales, lawyers said on Monday.

With Congress failing to take action on the issue, courtshave been intervening case-by-case in a long-running strugglebetween state governments and major online retailers, includingAmazon.com Inc, over sales tax.

On Friday, the Illinois Supreme Court voided a state lawattempting to collect sales taxes from online purchases. A tradegroup representing Amazon and other online businesses hadchallenged the state's online sales tax in court.

In New York, though, the state's high court decided earlierthis year that Amazon and Overstock.com Inc could becompelled by the state to collect tax from online sales. Amazonand Overstock have appealed to the U.S. Supreme Court. New Yorkhas until Wednesday to file its response.

Different decisions in different states improve the oddsthat the Supreme Court will tackle this issues, said StephenKranz, a partner at law firm McDermott Will & Emery.

"There will continue to be additional litigation at thestate level exacerbating the problem," Kranz said. "That isclear and should be a factor considered by the court in decidingwhether to take the New York or Illinois case."

The Supreme Court accepts only a small portion of thethousands of petitions it gets each year, but it is often moreinclined to step in when lower courts disagree. If the New Yorkcase were taken, oral arguments could come by April.

"The Illinois Supreme Court acknowledged the New Yorkdecision, but ruled for a different reason, setting up apossible challenge to the U.S. Supreme Court," said David Blum,a partner at law firm Levenfeld Pearlstein LLC.

TAX SPREADS

Seattle-based Amazon has been fighting one-on-one battleswith the 50 states for years over sales tax.

The United States has no national sales tax and Congress hasnot moved ahead with proposed legislation that would give allstates the power to enforce their sales tax laws on Internetretailers.

Amazon supports federal legislation for nationwide statesales tax enforcement, but other online retailers, includingeBay Inc and Overstock.com Inc, have fought it.

"We'll continue working with states, retailers and Congressto get federal legislation passed," said Amazon spokesman TyRogers in an emailed statement on Friday.

The Illinois court decision "shows that federal legislationis the only way to resolve the sales tax issue and protectstates' rights to make their own revenue policy choices," hesaid.

Wisconsin on Nov. 1 will become the 14th U.S. state to begincollecting sales tax on Amazon purchases. The state can startassessing the tax because Amazon is opening a distributioncenter in Kenosha, giving it a physical presence in Wisconsin.

SUPREME COURT'S 1992 RULING

Under a 1992 Supreme Court decision, retailers without aphysical presence in a state do not need to collect and remittaxes in that state on each sale. Consumers are supposed to paythe tax on their own, but very few do.

In states where Amazon has no physical presence, the companydoes not generally collect the tax, giving it a pricing edgeover traditional bricks-and-mortar merchants.

West Virginia this month started collecting tax on Amazonsales; and Virginia did so last month. Other states are fightingin court for the right to collect the tax.

Amazon's web site lists 13 states where it collects salestaxes and forwards the proceeds to states: Arizona, California,Georgia, Kansas, Kentucky, New Jersey, New York, North Dakota,Pennsylvania, Texas, Virginia, Washington and West Virginia.

For years, Congress has debated legislation to grant statesthe power to tax online purchases. In May, the Senate approved abill, but it has stalled in the House of Representatives.

The Illinois case is Performance Marketing Association Incv. Brian Hamer, Director of Revenue; No 2013 IL 114496.

The New York case is Overstock.com v. New York StateDepartment of Taxation and Finance. No. 33.

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