Supreme Court leaves online sales tax question to Congress

The U.S. Supreme Court will leave it to Congress to settle the contentious question of online sales tax collection that brick-and-mortar retailers contend puts them at a disadvantage to giants such as Amazon.com.

The nation’s highest court declined on Monday to hear a petition from Amazon.com and Overstock.com asking for a review of a New York Court of Appeals ruling that upheld the collection of sales tax for online purchases.

In 1992, the Supreme Court ruled sales tax only needs to be collected if a business has a physical presence in a state.

But the New York law, enacted in 2008, considers retailers to have a physical presence even if the businesses accept “affiliate” sales leads from other websites.

After New York passed the law, Overstock.com halted contracts with affiliate advertisers in New York, opting to contract with advertisers in other states.

On Monday, Overstock.com said the Supreme Court’s decision to not hear the case changed little and that it would not begin collecting sales tax in New York. Instead, “it simply means that we will continue not to engage New York Internet advertisers,” according to a statement.

“We are not shaken in our belief that the Internet tax law New York passed is unconstitutional under existing Supreme Court precedent, nor in our conviction that this issue requires a national solution,” the company said.

The Retail Industry Leaders Association, which has pushed for sales tax to apply to online sellers, said in a statement on Monday that it is now “up to Congress to close the online sales tax loophole.” Brick-and-mortar retailers must collect sales tax, but online retailers don’t in many states, giving them a pricing edge.

In May, the U.S. Senate passed the Marketplace Fairness Act, which would allow states to collect sales tax from online business with more than $1 million in sales but no physical presence in a state. The House of Representatives has yet to act on the bill.

Senator Dick Durbin, a Democrat from Illinois, called on the House to act, saying in a statement on Monday that the Senate has “overwhelmingly agreed to do away with the patchwork of confusing state laws that currently govern remote sales.”

The act would give states the option to collect sales and use taxes from out-of-state-businesses, according to Durbin’s statement.

Forty-six states have sales taxes. Technically, consumers are still supposed to remit sales taxes for online purchases to states, but the requirements are largely ignored.

Amazon.com collects sales tax in 16 states, according to its website: Arizona, California, Connecticut, Georgia, Kansas, Kentucky, Massachusetts, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington, West Virginia and Wisconsin.

Amazon.com could not immediately be reached for comment.