Sales Tax and Online Sales

February 17, 2014

On December 2, 2013—Cyber Monday—the Supreme Court declined certiorari to hear an appeal from two of the nation’s largest online retailers, and  As is the tradition, the Supreme Court made no comment in its refusal to hear the appeal.[1]  The internet merchants were appealing a decision from the New York Court of Appeals, the state’s highest court, which upheld a controversial New York law which focused on whether New York could force the e-commerce giants to collect sales taxes on their sales.

Specifically, the challenged portions of the law created a “rebuttable presumption” that Amazon and other large internet retailers had a physical presence in the state exclusively because of their affiliate-referral programs, thus allowing New York to force the retailer to collect sales taxes.[2]  The e-merchants argued, primarily, that the law violated their due process rights and the Commerce Clause of the Constitution.  The New York Court of Appeals rejected those arguments, in part, because a business needs only more than the “slightest” physical presence—justified in this case by the referral affiliates, who are paid by referring sales to Amazon through click referrals—to satisfy a nexus test with the state.  The U.S. Supreme Court’s denial to hear the case means that, for now, states are free to continue imposing constitutional derivatives of New York’s sales tax collection laws.

The Supreme Court’s denial of certiorari comes at an unprecedented time in the world of e-commerce.  For the first time ever, online vendors have beaten out their brick-and-mortar competitors by volume of sales between Cyber Monday and Black Friday.[3]  The decision of the New York Court of Appeals and U.S. Supreme Court’s denial of certiorari are particularly sweet news to the champions of physical retail stores, who have long had the view that Amazon and other online retailers had an unfair competitive advantage in not having to collect sales taxes.  Cyber Monday internet sales this year were up 34% compared to a decrease of physical retail sales on Black Friday by nearly 3%.[4]  Simultaneously, states are also eager to enact such laws because it can help restore lost revenue from retail sales taxes that have moved online.

The Court has declined to hear any issues on imposing sales taxes on out of state businesses in over twenty years, reflecting how slowly the law has changed despite the rapid revolution of an increasingly digital economy.   In 1992, the Court decided Quill Corp. v. North Dakota, in essence re-affirming a 1967 decision by the Court, which held that out-of-state mail order merchants could not be forced to collect sales taxes without a physical presence within the state.[5]  Although clearly outdated in today’s world, online and other out-of-state merchants have relied on Quill to argue that they have no “substantial nexus” to justify forcing them to collect sales taxation.

The debate and challenges to these laws are far from over – the Illinois Supreme Court struck down a comparable law in October 18, 2013.[6]  The Illinois Supreme Court concluded that the law was discriminatory and preempted by federal law, because it only required out-of-state internet retailers to collect the tax if they acquired a certain volume of sales through internet solicitation, but not out-of-state merchants who acquired the same volume of sales through print or broadcasting.  The schism between the decisions in New York and Illinois, amplified by the silence of the Supreme Court, reflects the uncertainty and difficulty multi-state businesses will be increasingly facing in the future.  The skilled advocates at Rock Fusco & Connelly can assure compliance with a variety of differing state laws and help your business grow.


[1] See Supreme Court docket # 13-252, denial of certiorari on December 2, 2013.
[2] See generally Consolidated cases No. 33 & 34, 2013, before the New York Court of Appeals, pending revision;, Inc. v. New York State Dep’t of Tax. And Finance, et al., and Amazon. Com, LLC, et al., v. New York State Dep’t of Tax. And Finance, et al.
[3] See
[4] Id.
[5] 504 U.S. 298 (1992).
[6] See generally Performance Marketing Ass’n, Inc. v. Brian Hamer, 2013 IL 114496.