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Time to Reconsider: Why It Is Finally Time for an Online Sales Tax

Though a relatively new method of commerce, online shopping has rapidly become a vital way for consumers to purchase goods. Online shopping provides buyers with a wider range of options than traditional brick-and-mortar stores, all obtained from the comfort of their own homes. Furthermore, prices of items purchased online are often cheaper due in part to most states being unable to compel online retailers to collect sales tax.

Because states lack the ability to force online out-of-state retailers to collect sales tax on these sales, they are losing out on a significant source of proceeds.1 Almost all states have a “traditional” sales tax that accounts for an important part of their revenue.2 However, the traditional sales tax no longer accurately reflects the purchasing habits of state residents and leaves many sales untaxed.3 In order to capture this potential revenue, several states, led by New York, have begun passing laws aimed at requiring online retailers to remit taxes on sales made within their territory.4

The current position of the Supreme Court is that states can only collect sales tax from sellers that have a physical presence within their borders.5 The case that established this, Quill Corp. v. North Dakota, was decided in 1992 however and the Supreme Court has declined to hear cases challenging this outdated standard.6 Many supporters of a new standard argue that the physical presence standard leaves open the entire question of how to tax online sales, and is thus irrelevant.7 In fact, Justice Kennedy himself has written separately to entreat the Court to reexamine the physical presence standard and reconsider its prior ruling.8

In order to get at these transactions while still meeting the Quill standard, New York State passed a law targeting online retailers.9 This law, known as the Amazon Law, establishes a presumption that a company is soliciting business in a state if it employs affiliates there.10 Though the decision in, LLC v. Dep’t of Taxation & Fin.,11 which upheld the constitutionality of the New York law, marks an important first step in creating an effective online sales tax, its consequences may deter other states from passing similar laws., a similar online retailer to Amazon that was also affected by New York’s law, suspended its relationship with third-party affiliates in New York after the decision by the Court of Appeals.12 Despite these potential setbacks however, it is clearly time to pass a widespread online sales tax.

  1. Zelda Ferguson, Is the Tax Holiday Over for Online Sales?, 63 Tax. Law. 1279 (2010). 

  2. Id. at 1280. 

  3. Id. at 1279. 

  4. See id. at 1282. 

  5. Bernie Becker, Justice Kennedy Gives Hope to Advocates of Online Sales Tax, The Hill (Mar. 7, 2015, 5:50 PM),

  6. Id. 

  7. See id. 

  8. Id. 

  9. Ricky Hutchens, Desperate Times Call for Desperate Measures: States Lead Misguided Offensive to Enforce Sales Tax Against Online Retailers, 68 Vand. L. Rev. 575, 589-90 (2015). 

  10. Id. 

  11., LLC v. New York State Dep’t of Taxation and Fin., 913 N.Y.S.2d 129 (N.Y. App. Div. 2010). 

  12. Robert Barnes, Supreme Court Declines Case on Making Online Retailers Collect Sales Taxes, Wash. Post (Dec. 2, 2013), available at

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Alisa Hand