The US Supreme Court on Monday declined to get involved in an Amazon.com and Overstock.com state tax case, effectively giving states the authority to tax companies who do not have a physical presence in that state.Since the Quill V. North Dakota case over 20 years ago, where the Supreme Court ruled that a business must have physical presence in a state for that state to require the business to pay state taxes; states have blurred the lines by defining physical presence in unique ways.
Although Amazon.com has no offices nor employees in New York, because they have affiliates located in New York, who sell Amazon products through their own websites, NY Court of Appeals said that third party affiliates who receive commissions from Amazon proves a "substantial nexus" (or physical presence), forcing Amazon and other companies to collect sales taxes.California Franchise Tax Board have long held that an out of state Corporation or LLC that sells tangible personal property to California residents or even an out-of-state LLC (Foreign LLC) with a California resident for a member/manger; are both considered to be doing business in California and must register for foreign authority and pay the minimum state tax.
The Quill ruling explicitly stated that Congress can overrule the decision through legislation.In 2011, the Marketplace Fairness Act was introduced to do just that; imposing essentially an Online Sales Tax on all purchases, by requiring all companies to collect sales taxes.This action would essentially impute physical presence on all companies for every state in which its residents buy.
What this means
Yesterday’s Supreme Court’s decision will now do two things: 1. It will prompt all states to aggressively collect sales taxes and argue physical presence on all companies who sell online to their residents; & 2. It will provide Congress the ammunition it needs to push forward their Internet Sales Tax legislation under the auspices of providing a fix to the hodgepodge of bewildering tax laws pushed by thousands of taxing states & municipalities.
Winners & Loosers
The winners of this decision will be those state and municipal governments who have been now given full license to tax any company that sells to its residents.
The losers are the consumer who will pay more (from sales taxes and other imputed compliance costs), and the small business owner who will have as to deal with much more compliance costs and complications to selling to customers in all states.
For more information on Internet Sales Taxes see these previous posts/articles:
CEO & Founder of SmallBiZ.com, created over seventeen years ago to help small business owners simplify the process of starting & managing their small businesses. SmallBiZ.com now serves over 10,000 businesses per year with various filing and subscription services; in addition to the 1000's of daily visitors to www.smallbiz.com, accessing free services, help pages, & educational videos & webinars.