All Internet Sellers, Beware: States May Tax You
From marketers with millions or billions in annual revenue to the individual who finally decided to sell that "Casablanca" LaserDisc years after getting rid of the player, the case heard Monday by the Supreme Court of the United States may affect all of them. All states may ultimately force all marketers to collect sales tax. But what concerns the plaintiffs—the Direct Marketing Association—even more is that states may also force marketers to turn over information about the buyers, and states may have the right to do so without sellers being able to fight it in federal court. The court is expected to issue a ruling in DMA vs. Brohl by June 2015.
So beware, home crafter, it may be time to be concerned about the Tax Injunction Act. The 1937 law stops federal courts from restraining local and state tax collection efforts unless it's impossible for a state court to handle them in a "plain, speedy and efficient" manner. In other words, if SCOTUS decides that law should prevail over the status quo, then states will have the last word on most Internet sales tax cases.
However, one of the lawyers presenting DMA's argument on Monday says he feels "encouraged" because three of the judges "expressed concern about long-range, far-reaching implications" of such a decision. Justices Samuel Anthony Alito, Jr., Stephen G. Breyer and Antonin Scalia asked questions and made statements during oral arguments that seemed to agree with the association's point of view, George Isaacson says. The senior partner with Lewiston, Maine-based law firm Brann & Isaacson related made the comments Monday afternoon in a DMA conference call with reporters about the case.
DMA is arguing that the Commerce Clause and the right to privacy aspect of the First Amendment allow marketers to keep buyer information private. That way, marketers aren't violating their customers' rights, Isaacson says.
Colorado is asking the court to enforce its law compelling marketers to turn over names and transactional data, as well as having marketers notify customers of their need to pay Colorado's sales tax. (Barbara Brohl, named in the case, is executive director of the Colorado Department of Revenue.)
"Justice Alito was quite concerned that if Colorado can fashion a statute that imposes obligations on a non-resident, non-taxpayer, out-of-state company, it is likely that there are going to be 50 other states that have similar initiatives," Isaacson says. "And he was expressing concern about the fact that what happens in one state sets a model for what may happen in other states, and that the court may be effectively unleashing states to enact that kind of legislation.
"There was similar concern expressed by Justice Scalia on that same kind of issue," he continues. "So one of the things that I found gratifying was the understanding the court demonstrated in regard to the boundless ramifications that its decision in favor of Colorado could lead to."
Matthew Schaefer, a partner with Brann & Isaacson who also argued before SCOTUS on Monday, says Justice Breyer cited a U.S. Court of Appeals Second Circuit precedent that more narrowly interpreted the term "tax collection" during his comments.
"Justice Breyer … expressed the concern that Colorado's view would, contrary to Judge Friendly's caution, result in a boundless understanding of the word 'collection,' " Schaefer says.
Speaking of broad definitions, Isaacson says there's nothing in the Tax Injunction Act that would limit states to taxing corporations.
"And so to the extent that a state may choose to use its tax code as a means for imposing various regulatory obligations on individuals and companies located outside of its borders, the Colorado position carries bad omens," he tells Target Marketing. "I think similarly, the DMA position would be protective of the right of both individuals and corporations to have access to federal court."
What are e-commerce marketers doing to prepare for the outcome of this case?
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