News From the SALT Minds-Dec. 4, 2013

Summary.  The United States Supreme Court has denied certiorari in Overstock.com's and Amazon.com's appeal of their New York State legal losses on click-through nexus.

Background. On December 2, 2013, the United States Supreme Court refused to hear Overstock.com's and Amazon.com's appeal of their adverse ruling on click-through sales tax legislation. The appeal arose from the internet retailers' challenge to a 2008 law passed by the State of New York creating a rebuttable presumption that online retailers using commission-based, performance marketing affiliate arrangements in New York with more than $10,000 in annual sales would have nexus with New York and must collect sales tax on sales to residents. The New York courts had upheld this law, which resulted in Overstock.com and Amazon.com filing petitions for certiorari with the United States Supreme Court. As we reported in a previous SALT Minds update, the New York courts decided only a facial challenge to the click-through nexus legislation. Since the factual record was not fully developed due to the appellants' prior litigation choices, this suit was not well positioned for resolution by the Supreme Court. The Supreme Court's cert denial in this litigation potentially delays the inevitable resolution of click-through nexus issue. The Supreme Court last addressed the issue of nexus in its pivotal 1992 Quill v. North Dakota case. In that case, the Supreme Court suggested that Congress was best suited to handle this issue. Although Congress has considered legislation to resolve this issue in recent years, litigation from one of the eleven other states with a law similar to New York may reach the Supreme Court first. The other states are: 

  1. Arkansas,
  2. California,
  3. Connecticut,
  4. Georgia,
  5. Illinois,
  6. Maine,
  7. Minnesota,
  8. North Carolina,
  9. Rhode Island,
  10. Texas and
  11. Vermont. 

As we reported in an earlier SALT Minds update, the Supreme Court of Illinois has overturned that state's click-through nexus law. Both Texas and Vermont have delayed enforcement of their laws. Unless Congress acts soon, it seems likely that taxpayers will continue to litigate this issue and that litigation will once again reach the Supreme Court. 

Prager's Take. The effect of the cert denial is that, for now, New York State's click through nexus law will be enforceable and companies should be complying by collecting sales tax on such transactions.  Nonetheless, it seems likely that even though Supreme Court rejected this petition, another petition could be accepted in the near future. If you have questions on how comply with this type of legislation, please contact us.