Online Merchants Guild Scolds States in Supreme Court Case on Sales Tax


A few weeks ago we reported on a new association that was formed to help marketplace and online sellers have a single voice in the interest of small online merchants.

Being a new organization there was not much information available yet and we wondered out loud a bit about their strategy.

Since then we have had an exchange with one of the principals, Paul Rafelson, and will offer up a video interview shortly on our YouTube channel.

But sales tax is clearly one of the leading subjects in 2018 for small online businesses as states attempt to find “creative” ways to collect them interstate transactions.

Many appear to be directly contradicting Quill Corp. v. North Dakota, a 1992 Supreme Court decision that effectively bars states from enforcing local sales tax laws on merchants who have no physical presence in the state.

But Quill is under fire at the Supreme Court in a new case, South Dakota v. Wayfair, Inc.

The new case before the high court attempts to overturn the Quill ruling and is set for oral arguments on Tuesday, April 17, 2018.

As part of such cases, interested third parties may file Amicus Curiae briefs or also known in plain English as Friends of The Court briefs with the high court.

To date, there have been 62 such filings and we found the one from the Online Merchants Guild one of the most interesting.

Online Merchants Guild No Holds Barred Brief on Sales Tax Fight

The association’s 41-page Amicus Curiae brief vigorously defends small online businesses and places the problem of tax collection on states and their inability to work out a meaningful solution with Amazon and potentially other online marketplaces.

Very interesting in the brief is the potential role Amazon has in this fight, and the curious relationship states have with the online giant retailer as it brings thousands of jobs to the states with fulfillment centers and offices.

Also interesting to note is that eBay and Etsy have filed Amicus Curiae briefs on behalf of their sellers, but Amazon has not!

Note: Amici is plural for Amicus and means friend(s). The petitioner in this case is the State of South Dakota.

Also, readers should keep in mind that quotes from the brief are excerpts to provide the basis of the association’s argument. At the end of this post is the entire document that provides full context, including supporting references.

Here are highlights from the association’s introduction:

“Amici submit this brief in support of Respondents, as the physical presence rule is the last bastion of defense any small business has against Petitioner, whose contradictory actions over the last ten years, particularly with respect to one company, Amazon, have directly caused the devastating consequences that Petitioner highlights.”

“Petitioner and like states, and not the Constitution or any ruling of this Court, that is responsible for lost tax revenue and the tilted playing field in favor of select online retailers over bricks and mortars.”

“Amici Curiae are the merchants that are, presently, real world victims of the Petitioner’s gross misstatements, misrepresentations and malicious claims.”

“These merchants have been victimized by the Petitioner’s continual lowering of the bar of constitutional decency. The scare tactics have worked; at least one million individual merchants are weighing whether it is a sound business decision to continue engaging in interstate commerce with the fear of state’s threatening of financial ruin and even jail time.”

“The amici are the merchants that cannot withstand the compliance demands of over ten thousand sales tax jurisdictions and the even more burdensome income tax compliance obligations, a burden that the Petitioner is fully aware of but are deliberately leaving out of this case. The amici will simply not be able to meet the $100,000, or more, annual cost of compliance.”

“Knowing that amici are the most vulnerable, the Petitioner strategically brought this case against the Respondents, and in doing so sought to avoid being perceived as the ruthless Goliaths they are to over two million online merchant businesses worldwide.”

Some interesting highlights from the statement section:

“California has employed a task force of call center representatives, all with minimal tax training, to bombard the landlines and cell phones of small business online merchants with the sole purpose of bringing the merchants “into compliance” and pitch a deal for cooperation that, surprise surprise, includes the merchants’ having to estimate and pony up six years of back taxes.”

“The Multistate Tax Commission (“MTC”) is no better, having facilitated an “amnesty” program that injected fear and created the false hope for businesses of all sizes; a promise of amnesty for up to ten years of back taxes. In reality, the MTC program was a trap for the unwary home-based business owner, leading to a multistate sales and income tax compliance obligations that even the most sophisticated of businesses struggle to comply with; requiring the support of countless accountants and lawyers, something no small business could ever afford.”

“Petitioner and its amici already have access to a simplistic statutory remedy to collect the tax that does not involve this Court’s intervention; one that’s even been implemented by Washington State. However, Petitioner has chosen to hide that possibility from the Court due to a continuous dysfunctional relationship Petitioner and its amici have developed with Amazon, over the last ten years.”

“No matter how dramatically things change, the Petitioner is always going to act as if it is innovation’s responsibility to absorb the burden at all costs, and never the Petitioner’s responsibility to adapt to innovation.”

“…the hundreds of thousands of businesses, of all sizes, that the MTC “invited” to participate in the program saw their “sham-nesty” program for what it was, saving the MTC from having a truly impossible compliance burden placed upon them. Thankfully, the entire MTC teleconference was recorded and subsequently posted to YouTube so that now, for the first time in the history of our nation, there is an audio recording of states caught in the act of unconstitutionally burdening interstate commerce.”

“…the Petitioner is attempting to convince the Court of its right to tax big online business on Constitutional grounds. In reality, the Petitioner will apply a holding in its favor to small business online merchants, as is evidenced by the fact that the Petitioner and its amici are currently doing it, while making statements to the contrary to this Court.”

“Petitioner claims that it is out to protect the brick and-mortar retailers and that its intent is to require big businesses like the Respondents to collect and remit sales and use taxes. In reality, the states are attempting to require small business online merchants, including those brick-and-mortar retailers who also sell online, to collect and remit sales and use taxes, and are refusing to do the same to the biggest online business of all, Amazon.”

“The decision to mask its deliberate and ongoing failure to protect local merchants from the unfair tax advantages of online marketplaces such as Amazon is merely a means of trying to deflect attention away from the fact that it was the states inaction alone that helped fuel what is commonly known as the “retail apocalypse”.”

“Fear of disrupting a cozy and dysfunctional relationship with retail giant Amazon, not the Constitution, has prevented the states from collecting tax, and achieving tax parity for both online and offline businesses.”

“Amazon is being treated by Petitioner and its amici as the tax equivalent of Switzerland, acknowledging its “neutrality” simply because Amazon relinquished control of their “tax or not to tax” button to the millions of online merchants, leaving it to the individual to determine their tax collection responsibilities. It is absurd that Amazon, retailer with nexus in every state, could avoid tax collection by way of contractual fiction, especially when all transactions are processed by Amazon, subject to Amazon’s terms and conditions, purchased by people who are contractually Amazon’s customer and only see Amazon’s logo when purchasing products supplied by the online merchant.”

“Petitioner and its amici have granted Amazon quasi “duty-free” status yet seek to mitigate their unethical decision by burdening hundreds of thousands of individual merchants with tax compliance costs most cannot afford, or seek back taxes because the online merchant did not collect, even though statutorily, constitutionally and practically, it is and was Amazon’s responsibility.”

“California, where Amazon employs 30,000 residents, who was once known by its peers for being an innovator and thought leader when it came to holding taxpayers accountable for tax obligations, has now shown that it can also be an innovator and thought leader for foreign dictatorships too; threatening out of state small business owners with incarceration for taking what is essentially the same legal stance as the Respondents who have been brought before this Court.”

“However, what was most surprising about the response was that, a review of the source document, which was sent to merchants in Microsoft Word format, revealed hidden metadata indicating the ruling was prepared by Amazon and copied onto official California letterhead.”

“The undue influence that Amazon has over the Petitioner and its amici has turned governments against their own people, resulted in frivolous claims of unpreventable loss and harm that are currently before the Court, and is itself a burden on interstate commerce that must be answered for, and appropriately addressed.”

“Petitioner has chosen to keep Amazon happy by not fixing their law, opting instead for an artificial amnesty program that only placed further burdens on interstate commerce and accomplished nothing.”

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