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Sales Tax

Amazon Takes the Tax Fight to the Supreme Court

Staff at the Amazon Swansea fulfillment center in Swansea, UK

Photograph by Ben Cawthra/Redux

Staff at the Amazon Swansea fulfillment center in Swansea, UK

It is perhaps the one remaining venue where Jeff Bezos has yet to emerge victorious: the Supreme Court. Now he could even prove dominant there.

Yesterday Amazon petitioned the nation’s highest court to hear its challenge against a 2008 New York State law that requires online retailers to collect sales tax. The company has hired famed Washington (D.C.) attorney Ted Olson to represent it.

The online sales tax issue is maddeningly complex, and it is muddied even further by the fact that Amazon (AMZN) has already agreed to collect sales taxes in many states, including New Jersey and California. Bezos has also repeatedly made plain his support for a federal law called the Marketplace Fairness Act, currently stalled in the House of Representatives, which would require all online retailers to collect and remit sales tax.

To resolve this apparent paradox—Amazon fighting and surrendering at the same time—one must embrace a central fact: Amazon is now far more concerned with creating a level playing field than with exploiting a sales-tax loophole. Over the past few years, the company has undergone a dramatic transformation. It is no longer the e-commerce upstart from Seattle shipping goods from a handful of fulfillment centers in low-population states to all corners of the nation. Now it’s a retail giant with operations in nearly every state and around 100,000 employees. It’s eventually going to collect sales tax everywhere, and it knows it. That’s why it’s agreeing to pay tax in many states and is supporting a federal bill to overturn the Supreme Court’s Quill Corp. v. North Dakota decision of 1992, which ruled that retailers without a physical presence in a state need not collect sales tax.

So why then is Amazon fighting in New York and petitioning the Supreme Court? The New York law, which was among the first to tackle the online sales tax exemption, takes a circuitous approach. It says that retailers with affiliates in the state—those small websites, often run by hobbyists, that make extra money by referring their readers to Amazon to buy items and then earn a commission on the sale—must collect sales tax. (Other states have taken a far more direct path, ruling that online retailers with physical operations in the state must collect.)

Amazon clearly dislikes New York’s law. It’s confusing to customers and is easily circumventable by sellers. E-commerce startups can simply avoid authorizing any local affiliates, and Bezos most certainly doesn’t want some wily entrepreneur to do what he did and create the next Amazon. The company has already cut off its affiliates in New York, as well as in Illinois, which passed similar legislation. By getting the Supreme Court to overturn Quill Corp. v. North Dakota, Amazon would clear the way for a new law that sets aside the size of an online retailer and taxes all parties evenly.

So will the Supremes take the case? That’s for the court watchers to opine on, but it certainly gets at the constitutional issues that have bedeviled the retail world for years: The old taxation rules simply no longer apply in a world where computers allow any company to cross every border effortlessly.

Stone is a senior writer for Bloomberg Businessweek in San Francisco. He is the author of The Everything Store: Jeff Bezos and the Age of Amazon (Little, Brown; October 2013). Follow him on Twitter @BradStone.

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