Supreme Court sours Cyber Monday for online retailers

By Paul Merrion, Crain News Service

WASHINGTON (Dec. 3, 2013) — Just as Cyber Monday rolled out across the nation, the U.S. Supreme Court let stand New York's so-called "Amazon tax," which imposes sales taxes on goods sold over the Internet to residents of that state.

The decision not to hear the case leaves an unresolved conflict between New York and Illinois, where the Illinois Supreme Court recently rejected an Internet sales tax.

"I'm disappointed," said David Blum, a tax lawyer at Chicago's Levenfeld Pearlstein who represents both brick-and-mortar and online retailers. "This goes right at the heart of billions of dollars of commerce, with potentially millions of dollars of tax revenue in the cross-hairs. We need a bright-line test."

Amazon.com L.L.C. and Overstock.com appealed the New York tax decision, and eight friend-of-the-court briefs urging the high court to hear the case were filed by other Internet retailers and groups representing state tax authorities, state legislators and tax interest groups.

Illinois Department of Revenue lawyers have not decided yet whether to appeal the recent Illinois Supreme Court decision to the Supreme Court, a spokeswoman said. The Dec. 2 ruling "may be a factor in our determination" of whether to file an appeal, which is due by mid-January, she said.

Although New York and Illinois are split on the issue of Internet taxes, they took different legal routes to reach that point, which makes it less likely the Supreme Court would hear an Illinois appeal after letting the New York decision stand.

The Illinois Supreme Court voided online sales taxes on the basis of a federal moratorium on Internet taxes, which expires next year, but it didn't rule on whether the U.S. Constitution's interstate commerce clause was violated. The New York case found there was no violation of the commerce clause.

That means there is no constitutional issue for the court to decide, and the Illinois decision will be moot in a year unless the federal moratorium is extended.

The Supreme Court declined without comment to hear the New York case but sent a message nevertheless to Congress—where Senate-passed legislation to make Internet sales taxable is pending in the House.

"Consumers, retailers and tax authorities all need to know what's taxable and why," said Mr. Blum, who wasn't involved in New York's appeal. "This absolutely could be a Supreme Court signal to Congress: You need to decide this."

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This report appeared in Crain's Chicago Business magazine, a sister publication of Tire Business.