High Court Sidesteps Fight on Online Sales Tax Rules -- 2nd Update

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.

"States will now be unrestrained in passing new 'tattletale reporting' laws that force online and catalog retailers to report personal information and purchase data to state tax collectors," said Steve DelBianco, executive director of NetChoice, a trade group representing internet commerce companies.

Other cases involving online sales are working their way through the lower courts, and the justices may get another opportunity to address the issue 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.

In a statement Monday, the DMA said it was disappointed in the court's decision and urged Congress to act.

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 Colorado Department of Revenue said it is evaluating the decision.

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 [e-mail]

(END) Dow Jones Newswires

December 12, 2016 13:43 ET (18:43 GMT)

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