SALT LAKE CITY — A U.S. Supreme Court decision to stay out of the fight between states and online retailers over taxing Internet sales might bolster an effort in Utah to make cyber sellers follow the same tax collection rules as brick-and-mortar shops.
Sen. Wayne Harper, R-Taylorsville, said the high court made the right call, but it would be difficult to implement unless Congress passes the Marketplace Fairness Act. That bill, which cleared the Senate in the spring, would let states collect sales and use taxes from online retailers without any physical presence in their states.
The Utah Senate earlier this year narrowly approved Harper's bill to require retailers who do not have a shop or store in the state to collect and remit state and local sales taxes if those retailers have business relationships with a seller not located in the state.
But the measure died in the House without a vote. Harper intends to run similar legislation in 2014 with what he sees as the strength of the Supreme Court decision behind it.
"There's passion on both sides, but the right thing to do is to treat all businesses fairly and make it easy for the due tax to be collected," he said.
Currently, there is a patchwork of laws around the country on taxing Internet sales, making it difficult for online retailers to collect and remit taxes.
Harper said a streamlined process that allows online businesses to file a single return on the taxes rather than one for each state would make it easier.
The Supreme Court's decision Monday to not hear the issue left intact a New York appeals court ruling that Amazon.com and other online retailers must collect state sales taxes when they pay affiliates that sell their products.
Amazon and Utah-based Overstock.com sought the high court review, arguing that the New York court's ruling "provides a road map for other state legislatures to enact similarly burdensome legislation."
Overstock.com Executive Vice Chairman Jonathan Johnson noted that while a New York appeals court found it legal, the Illinois Supreme Court threw out a law that would tax certain Internet sales.
"If people like Sen. Harper are taking courage in the U.S. Supreme Court not looking at this, I think they should think again," Johnson said. "Just because a liberal court in New York found one thing, it doesn't mean more law-abiding courts won't find a similar law unconstitutional."
Attorneys for the Utah Legislature warned lawmakers that Harper's bill raised questions under the commerce clause of the Constitution because it attempted to impose obligations on out-of-state sellers who do not have a physical presence in the state.
The Supreme Court ruled in 1992 that North Dakota could not collect sales tax from an office supply company that shipped products to customers in the state but had no physical presence there.
Overstock.com, which charges tax on Utah-based sales, opposed Harper's bill in the 2013 Legislature and threatened to file a lawsuit if it passed.
"If the senator proposes the same old, same old, we'll oppose it and fight against it" in 2014, Johnson said.
If they're being asked to collect sales tax nationwide, that's very difficult. It may, frankly, put them out of business.
–Jonathan Johnson, Overstock.com Executive Vice Chairman
Harper said he's "scrambling" to rework his legislation in light of the high court decision on the New York case. He said he wants to level the playing field between online retailers and brick-and-mortar stores.
Johnson said the law would tilt the playing field against online sellers because it's easy to collect tax at the point of sale but difficult remotely because of the mixed bag of laws around country. Online businesses, he said, could get in trouble for collecting or not collecting taxes based on local laws.
Sen. Curt Bramble, R-Provo, said that argument might have worked in the 1980s, but technology today is much more sophisticated. Online retailers that can identify what sites consumers visit and what they buy should be able to figure out how collect sales tax, he said.
The software to do that costs million of dollars and would be a burden on mom-and-pop shops that make up most of e-commerce, Johnson said.
"If they're being asked to collect sales tax nationwide, that's very difficult. It may, frankly, put them out of business," he said.
Bramble said many consumers today go to traditional stores to talk to a salesperson or test a product only to buy it online while standing in the store to avoid sales tax.
"The reason behind this whole movement is: How do we maintain a vibrant bricks-and-mortar retail establishment when there's this artificial advantage based on tax policy?" he said.
Despite their disagreement, Bramble, Harper and Johnson say Congress holds the key to a solution, and the Supreme Court leaving the New York law in place could be a catalyst for it to act.
"This will simply turn the heat up on Congress," Bramble said.