Sales Tax Slice: Will the U.S. Supreme Court Hear New York’s Amazon Case?


October marks the beginning of the U.S. Supreme Court’s new court calendar, and the Council On State Taxation (COST) wants New York’s Amazon ruling to be part of this year’s docket.  Recently COST filed an amicus brief in support of Amazon’s cert. petition. 

Amazon and Overstock.com have asked the U.S. Supreme Court to consider hearing their case in which New York’s highest court, the Court of Appeals, upheld a state law that creates a presumption of substantial nexus for certain remote sellers.

At the center of the controversy is a 2008 amendment to the statutory definition of “vendor.” The amendment provides that sellers of taxable property or services are presumed to be soliciting business through a resident representative if the seller enters into an agreement to compensate the resident for referring potential customers to the seller, whether by a link on an internet website or otherwise.

New York’s high court noted the “physical presence” standard set forth in Quill v. North Dakota, 504 U.S. 298 (1992), is still applicable even though the “world has changed dramatically in the last two decades.” But the court said changing that standard to account for the emergence of the internet “would be something for the United States Supreme Court to consider.”

Among the reasons COST provides in support of the court’s grant of cert., it brings up the big picture on states’ approaches to substantial nexus – a “patchwork of jurisdictional nexus standards, producing confusion and uncertainty this Court’s ‘bright line’ test for ‘substantial nexus’ in Quill was intended to avoid.”

COST argues that states have adopted expansive nexus theories with attenuated links to the taxpayer’s physical presence in the state, a traditional test of substantial nexus. It also points out in its brief that the uncertainty of where a taxpayer will be considered to have substantial nexus significantly burdens interstate commerce and the compliance costs for multistate businesses.

A U.S. Supreme Court ruling on the issue could answer a number of questions regarding the validity of several states’ attempts to enact so-called click-through nexus. But overturning New York’s latest Amazon case could be an uphill battle because the taxpayers made a “facial” challenge as opposed to an “as applied” challenge to the state’s statute. To win a facial challenge, the taxpayers would have had to prove that there were no circumstances under which the statute could be constitutionally applied, COST’s Fred Nicely explained in March after New York issued its ruling.

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