NEW YORK Amazon.com Inc and other out-of-state online retailers must collect state tax on New York state customers, the state's highest court ruled on Thursday, a decision at odds with other courts that could set the stage for a showdown in the U.S. Supreme Court.
The case, combining two brought by Amazon and Overstock.com Inc, was decided by the New York State Court of Appeals by a vote of 4-1.
"It's unfortunate and the (U.S.) Supreme Court ought to look at this," Overstock acting Chief Executive Jonathan Johnson told Reuters by phone.
"We have states saying different things," he said, citing a ruling by the Illinois Supreme Court that a similar tax was not permissible.
The U.S. Supreme Court typically accepts cases where lower courts issue conflicting opinions.
"The ruling by the New York Court of Appeals conflicts with both the U.S. Supreme Court's precedents and with contrary decisions by other state courts that have looked at the same issue," an Amazon spokesman said by email.
The best solution to that conflict, he said, would be passage of federal legislation currently under consideration that would allow any state to require tax collection.
New York State Commissioner of Taxation and Finance Thomas Mattox commended the court for "recognizing the logical application of existing precedent to the 21st Century economy."
Eight other states have passed legislation similar to New York's, which requires out-of-state retailers to collect sales tax even when they do not have a physical presence in the state, but do have affiliates in the state.
Retailers with a physical presence in any state must always remit sales tax on purchases made either in a store or online, but since a 1992 Supreme Court decision, Quill Corp v. North Dakota, retailers lacking a "nexus" of operation in a state have not been required to collect sales tax.
In recent years, as online sales have grown as a portion of the retail market, Amazon has agreed to begin collecting sales taxes in California, Texas, New Jersey and some other states where it has distribution facilities or plans to build them.
Richard Pomp, professor of law at the University of Connecticut and an expert on state taxes, said the decision was not a surprise, and will have less impact today than it would have before Amazon began cutting deals with states to pay taxes.
Overstock ended its affiliate network in New York in 2008 and so the ruling will not have an impact on its operations, Johnson said.
Amazon was already paying tax to the state pending the decision, according to the New York Department of Taxation.
Between the New York law's passage in 2008 and today, online-only retailers collected and remitted $500 million in sales tax on more than $6 billion in transactions, according to the New York State Department of Taxation and Finance.
The cases are Overstock.com v. New York State Department of Taxation and Finance, New York State Court of Appeals No. APL-2012-00017, and Amazon.com v. New York State Department of Taxation and Finance, New York State Court of Appeals No. APL-2012-00045.
(Reporting by Nanette Byrnes in Chapel Hill, North Carolina; Editing by Howard Goller and Leslie Gevirtz and David Gregorio)
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