State Net Capitol Journal – December 9, 2013; Supreme Court Refuses To Hear New York 'Amazon Tax' Case

State Net Capitol Journal – December 9, 2013; Supreme Court Refuses To Hear New York 'Amazon Tax' Case

Budget & Taxes

SUPREME COURT REFUSES TO HEAR NY 'AMAZON TAX' CASE: On the same day that consumers were making Cyber Monday the busiest online shopping day in history (see Bird's eye view), the U.S. Supreme Court denied petitions from Amazon and Overstock to review a case from New York's highest court upholding that state's 2008 law requiring online retailers with affiliates in the state to collect sales taxes.

New York's Court of Appeals ruled that an online retailer's relationship with third-party affiliates in the state that are paid commissions for sending Web traffic the retailer's way constitutes a "substantial nexus" obligating the retailer to collect taxes in the state. Twenty years ago the U.S. Supreme Court ruled in Quill v. North Dakota that a state could only tax an out-of-state retailer when the retailer had a "substantial nexus" in the state, which the court stipulated was a "physical presence" in the state. But with that decision having come before the online shopping revolution, the New York court said the standard it established might be outdated.

New York State Attorney General Eric T. Schneiderman (D) was pleased the high court opted to stay out of the issue now.

"Today's Supreme Court decision validates New York's efforts to treat both online and brick-and-mortar retailers equally and fairly, by requiring all retailers with a presence in our state to collect sales taxes," he said in a statement.

But David C. Blum, a Chicago tax lawyer who represents both online and brick-and-morter businesses, said the high court's action will only create more pressure for a national solution on the issue.

"The failure of the court to take and decide this case will create an additional burden on interstate commerce since the line between a physical and virtual presence will only continue to blur," he said. "We can only hope that the court will take other similar cases in the near future" to resolve the issue.

Amazon, meanwhile, said in a statement that the Supreme Court had already addressed the issue in Quill, saying that "Congress can and should act to resolve it."

"The Marketplace Fairness Act now pending before Congress would protect states' rights to make their own revenue policy choices while allowing them to collect more than a fraction of the revenue that's already owed," Amazon said.

The U.S. Senate passed that act, which would require companies with over $1 million in Internet sales outside their home states to collect sales taxes in every state. But the measure's future is uncertain in the House, with some Republicans maintaining it would constitute a tax increase for their constituents. (WASHINGTON POST)

IL OK'S PENSION OVERHAUL: After years of neglect and stalemate, Illinois lawmakers approved a plan last week to address the largest public pension shortfall in the nation.

The plan (SB 1), passed by a vote of 62 to 53 in the House and 30 to 24 in the Senate, calls for, among other things, skipping cost-of-living increases for some retirees, raising the retirement age by up to five years for workers under the age of 46 and creating a 401(k)-style plan that workers could opt into instead of staying in the state pension plan. But the plan would also erase the state's $100 billion pension shortfall by 2044.

Gov. Pat Quinn (D), who has been pushing for an overhaul of the pension system for years, declared victory.

"The people have won," he said. "We have all won."

But there wasn't much cheering or celebration among some lawmakers, even those who supported the legislation.

"I don't take any joy in this action today," said Rep. Elaine Nekritz (D). "But it is the responsible thing to provide for a pension system that gives workers retirement security without bankrupting our state."

Opponents, meanwhile, had nothing but jeers.

"This is no victory for Illinois," said We Are One Illinois, a coalition of labor unions, "but a dark day for its citizens and public servants."

Union leaders vowed a legal challenge, contending that by lowering pension benefits the plan violates the state Constitution.

Senate President John Cullerton (D), who proposed an alternate plan that was supported by the unions but stymied by House Speaker Michael Madigan (D), seemed inclined to agree with that assessment but also willing to take a wait-and-see approach.

"I think the bill has serious constitutional problems, I've made that clear from the start, but now it's in front of the court and they can decide," he said. (CHICAGO TRIBUNE, NEW YORK TIMES, QUAD-CITY TIMES, STATE NET)

STATE AID NOT CURBING PROPERTY TAXES IN MN: Even though Minnesota recently boosted funding for local governments by $120 million, in part to reverse a trend of rising local property taxes, most cities and counties in the state are still planning property tax increases.

According to preliminary data released last month, 93 cities are planning to reduce property taxes, while 537 are planning to raise them. And 67 of the state's 87 counties intend to do the same.

Even with the additional state aid, cities still have to balance the demand for more spending, said Mayor Dave Bartholomay of Circle Pines, which is planning to lower property taxes by two percent.

"Every city basically faces the same dilemma, how to manage a list of important needs put off for years because of declining state investment in local communities," he said. "Property tax reduction is on the list, as is replacing a snowplow or fixing old or broken playground equipment, or perhaps refilling the rainy day fund to limit tax increases in the future."

But Mayor R.T. Rybak of Minneapolis, which is planning a 1-percent property-tax reduction, said it took a long time for his city to round the property tax corner and he thinks other cities will eventually do so as well.

"It's taken 12 years to get out of a hole, while we were being whac-a-mole'd back in by the tax strategy of the past governor and Legislature, frankly," he said. "So, every city is different." (MINNESOTA PUBLIC RADIO NEWS)

STATE SPENDING DOWN IN FY 2012: Last month the National Association of Budget Officers (NASBO) released the latest version of its State Expenditure Report, covering state spending and revenue trends for fiscal years 2011-13. And for the first time in the publication's 26-year history, total state spending declined in FY 2012. But total state spending returned to more typical levels in FY 2013, growing 4.7 percent.

Among the NASBO report's other notable findings: Federal funding for states declined 9.1 percent as most federal stimulus spending ended; Medicaid spending, as a percentage of total state spending, has risen from 20.5 percent in FY 2008 to an estimated 24.5 percent in FY 2013; K-12 education spending has declined from 22.0 percent of total state spending in FY 2008 to an estimated 20.0 percent in FY 2013; and state spending on transportation increased by 4.4 percent in FY 2012 and 3.8 percent in FY 2013. NASBO also reported that state revenues have continually increased since 2010, reaching $647.7 billion in FY 2011, $671.1 billion in FY 2012, and an estimated $707.5 billion in FY 2013. (NASBO.ORG)

PRIVATE TOLL ROAD OPERATORS SHIFTING RISK TO STATES: Illinois and Indiana are offering the private operators of their toll roads set payments instead of the right to keep the toll revenue they collect, which has been the usual method of financing such ventures in the past. Similar arrangements are also being used for highways in Florida and a bridge in New York.

The new financing scheme shifts more of the financial risk for operators, like Madrid-based Ferrovial SA and Sydney-based Macquarie Atlas Roads Group, to states after numerous private toll projects across the country have faced financial struggles due to traffic failing to meet projections.

"We are seeing more of that because investors are a bit skittish about the U.S. market," said Richard Geddes, director of Cornell University's Program in Infrastructure Policy. "If it's a new road, there is a lot of risk on how many vans, trucks, motorcycles and other vehicles will end up paying the tolls." (BLOOMBERG)

CA BULLET TRAIN PLANS DERAILED: A Sacramento judge has derailed California's ambitious plans to build a high-speed rail line linking San Francisco and Los Angeles. Sacramento County Superior Court Judge Michael Kenny issued a pair of decisions blocking the California High Speed Rail Authority from selling $8 billion in bonds approved by voters in 2008 (Proposition 1A) and ordering it to rewrite its financing plans for the project. In the latter case, Kenny sided with the Kings County Board of Supervisors and two homeowners who had alleged the rail agency failed to adequately detail how the project would be funded before requesting the bond money to start construction.

"The combination of rulings may prove fatal to this project," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, which opposed the bond request. According to its website, the HJTA's position is that the rail agency's plans "had so deviated from the promises made to voters in Proposition 1A, that bonds for the project had not received voter approval." (SFGATE.COM, HJTA.ORG)

BUDGETS IN BRIEF: The PENNSYLVANIA General Assembly passed and Gov. Tom Corbett (R) signed legislation (HB 1060) that will pump $2.3 billion dollars into highway, bridge and mass-transit system improvements (POLITICO, STATE NET). • CALIFORNIA's legislative analyst is projecting the state will end the current year with a $2.4 billion surplus, thanks to the state's improving economy and the passage last year of Proposition 30, increasing sales taxes through 2016 and income taxes on the wealthy through 2018. The analyst also projected surpluses of $2.4 billion for 2014 and $5.6 billion for 2015 (SFGATE.COM). • Republican lawmakers in OHIO's GOP-controlled House have proposed a scaled down version of the severance tax hike they scrapped three months ago. House Bill 375 would impose a tax of 1 percent of the net value of oil and gas generated from each horizontally drilled well in the state for the first five years of production. The tax would then increase to 2 percent until the well started declining in production, at which time the tax would return to 1 percent (CLEVELAND.COM, STATE NET).

- Compiled by KOREY CLARK

The above article is provided by the State Net Capitol Journal. State Net is the nation's leading source of state legislative and regulatory content for all states within the United States. State Net daily monitors every bill in all 50 states, the District of Columbia and the United States Congress - as well as every state agency regulation. Virtually all of the information about individual bills and their progress through legislatures is online within 24 hours of public availability.

If you are a subscriber, you can access State Net Bill Tracking, State Net Full Text of Bills, or State Net Regulatory Text. If you are interested in learning more about State Net, contact us.

For insightful analysis and practical guidance on state and local taxation, explore Bender's State Taxation: Principles and Practice

Discover the features and benefits of LexisNexis® Tax Center.

For quality Tax & Accounting research resources, visit the LexisNexis® Store.

To subscribe to the Capitol Journal and access archived issues go to the State Net Capitol Journal.

For more information about LexisNexis products and solutions connect with us through our corporate site