High Court Sidesteps Fight on Online Sales Tax Rules -- Update
December 12 2016 - 11:23AM
Dow Jones News
By Richard Rubin
WASHINGTON -- The U.S. Supreme Court on Monday turned aside a
chance to revisit the rules governing sales taxes on purchases
across state lines, an issue at the center of efforts by states to
collect tax on online sales.
The court declined, without comment, to take up appeals on a
Colorado law that requires retailers without a physical location in
the state to report their customers' names and total purchases to
the government. Colorado could then use the information to collect
what is known as use tax, the little-known, little-enforced
companion to sales tax.
An appeals court upheld the law, but it has been on hold during
litigation and legal questions remain about state efforts to
collect taxes on online and out-of-state sales. If Colorado's law
ultimately survives, other states may start copying its framework.
That would let them get taxes from cross-border sales without
requiring direct collection by retailers.
Other cases are working their way through the lower courts, and
the justices may get another opportunity to address it in the next
few years.
The Data and Marketing Association, a marketing trade group,
sued to block the Colorado law, which has ramifications for
companies selling directly to consumers online and through other
means. Big retail players Wal-Mart Stores Inc. and eBay Inc., for
instance, are on opposite sides of the lengthy dispute, with
Wal-Mart worrying about the impact of tax-advantaged online
competition against its physical locations and eBay warning about
the expanded reach of state tax administrators on its merchants.
The DMA has claimed Colorado's law targeting of out-of-state
companies violates the part of the Constitution that gives Congress
the power to regulate interstate commerce. The law, they wrote,
discriminates against out-of-state firms.
Colorado asked the court to deny a hearing but told the justices
that if they took the case, they should reconsider a 24-year-old
precedent limiting the ability of states to collect sales taxes.
State governments and brick-and-mortar retailers have been
searching for a way to upend the status quo established by a 1992
Supreme Court decision, Quill Corp. v. North Dakota. Under that
ruling, retailers without a physical presence in a state can't be
forced to collect sales taxes on purchases.
The Quill ruling created a price advantage for catalog companies
that turned into a more significant edge when internet shopping
took off.
"Given the meteoric rise of online retail sales and the ready
availability of technology to ease tax collection burdens, there is
simply no practical reason to maintain the artificial physical
presence rule," Colorado said in its brief.
The DMA and Colorado didn't respond immediately to requests for
comment Monday.
Advocates of allowing states to apply their taxes to
out-of-state retailers have tried and failed to get Congress to
give states more power. The Senate passed a bill in 2013 that would
have let states tax cross-border purchases, but it has stalled in
the House, blocked by a coalition of antitax groups, online
retailers and lawmakers from states without sales taxes.
The court's decision not to hear the Colorado case doesn't end
the legal fight. Other states have been setting up challenges to
the Quill decision, and a South Dakota case is working its way
through the lower courts.
The National Governors Association, the National Conference of
State Legislatures and other groups urged the court to decline the
case and wait for the South Dakota litigation or another chance to
squarely address the Quill precedent.
The Retail Industry Leaders Association echoed that point
Monday, saying this case wasn't the right one for the Supreme Court
to take.
"Cases that better present the Quill question are already well
under way, " said Deborah White, general counsel of the group,
which represents big-box stores. "Main Street retailers welcome the
decision announced today and look forward to a better opportunity
to resolve this decades-old problem once and for all."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
December 12, 2016 11:08 ET (16:08 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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