Amazon’s deal re-visited

The battle over state sales tax being collected by on-line retailers like Amazon has now moved to Congress.  Amazon, which this year won a battle in South Carolina receiving a reprieve from collecting sales tax on in-state sales in exchange for building a distribution center in Lexington County, apparently has now switched sides. 

The retail giant is supporting the Marketplace Fairness Act that would strip away the Supreme Court’s Quill decision that said on-line retailers without a physical presence in a state did not have to collect sales tax on purchases in that state.  The sales tax was still owed but it was the purchaser’s responsibility to pay it directly to their state.

If the federal legislation passes, the main opponents now are eBay and Overstock.com, all on-line retailers would be obligated to collect each state’s sales tax and remit it to the proper state.  The bill would exempt retailers with on-line sales of less than $500,000.

All this is good news for the nation’s small brick and mortar businesses that are at a severe competitive disadvantage because they have to charge sales tax but on-line retailers like Amazon do not. 

But passage of the federal legislation won’t appear to help South Carolina’s small businesses until 2016 because the legislation passed this year in the state specifically carves out a sales tax collection exemption only for Amazon to the exclusion of even all other on-line retailers.  Now the constitutionality of that special deal has been called into question.

In yesterday’s issue of Tax Analysts law professors James E. Rogers and Walter Hellerstein provide a scholarly legal assessment of South Carolina’s law regarding Amazon.  They conclude that South Carolina’s law violates the Commerce Clause of the Constitution because it treats certain out-of state on-line retailers (Amazon) different from other out-of-state on-line retailers. 

So even if the Marketplace Fairness Act with its bi-partisan support eventually is enacted, the constitutionality of South Carolina’s law needs to be challenged.  Any lawyers interested?