Justice leaves open possibility of reviewing issue in future

The U.S. Supreme Court handed the Direct Marketing Association a small but important victory Tuesday with a ruling that the group could challenge in federal court a Colorado law concerning the collection of Internet sales tax.

However, one justice said it may be time for the high court to revisit the issue—leaving open the possibility that justices could end a legal quagmire that has divided the retail industry and its associations.

Currently, states and local governments have little power to collect sales tax from purchases made on the Internet if a company does not have a physical presence within a state's borders. That lack of authority largely stems from a 1992 Supreme Court ruling finding North Dakota could not tax purchases made with an out-of-state company that let customers buy office supplies through an inventory software program.

Many state officials believe current law is ambiguous at best on many Internet purchases, and they note that changing shopping behavior is potentially causing states to lose millions of dollars in tax revenue. Several states have become more aggressive in recent years trying to collect online tax, and in 2010, Colorado passed a law requiring out-of-state retailers to notify officials of purchases made by customers living within its borders.

DMA challenged the law, saying it violated consumers' right to privacy and discriminated against interstate commerce. Colorado countered that the association could not bring the case in federal court because of a federal law requiring certain tax cases to be heard in state courts, but the Supreme Court unanimously ruled the suit could move forward.

"Today's unanimous and precedent-setting opinion is powerful affirmation for fairness in litigation through access to federal courts, a concept that DMA has championed in leading this effort," DMA CEO Thomas Benton said. "DMA's landmark victory protects marketers and all businesses from the overreach of state laws." http://bit.ly/1AIoYTc

However, in issuing the ruling, Justice Anthony Kennedy implied it may be time for the high court to revisit the issue of Internet sales tax collection given the prevalence of the industry in today's economy, the New York Times reported.

Associations are divided on the issue. DMA opposes internet sales taxes because many of its members rely on online sales. However, both the National Retail Federation and Retail Industry Leaders Association want states to be able to collect the tax. Many of their members are traditional brick-and-mortar stores that must collect tax, and they see their online competitors as having an unfair advantage in being able to sell products without added tax.