A unanimous U.S. Supreme Court ruling Tuesday may pave the way to reconsider federal online sales-tax collection laws. Ruling on a Colorado case, the court sent a lawsuit by the Direct Marketing Assoc. back to a federal appeals court.
The case sought to challenge state tax collection laws can only be filed in state court. However, Justice Anthony Kennedy said there’s a powerful case to be made that a retailers have some tax-collection duty even if business is done through mail or Internet, suggesting it is time to reconsider the ban on state collection of sales taxes from companies outside a state’s borders.
The case could address a 30-year-old law that allowed mail order companies to avoid paying local sales taxes unless there was “nexus,” or a company had offices in a state that forced the sales tax collection.
The case could support development of the Marketplace Fairness Act, a federal law that would enable a simplified system to collect sales taxes on Internet sales and redirect them to state jurisdictions. It would level the playing field for small businesses that compete against Internet-only retailers, such as Amazon.com, which don’t collect or remit sales taxes. This unfairness gives online retailers a pricing advantage over local retailers who must pay the taxes.