• by Wendy Davis  @wendyndavis, December 2, 2013

The Supreme Court on Monday declined to hear online retailers' challenge to New York's “Amazon tax.”

The court didn't give a reason for its decision, which lets stand a 2008 state law requiring online retailers to collect sales tax if they use in-state affiliates -- including Internet publishers that collect commissions if people make purchases after clicking on ads.

Earlier this year, New York's highest court upheld the law, which was challenged by Amazon and Overstock. The retailers unsuccessfully argued that they can't be required to collect sales tax without a "substantial nexus" to the state -- like brick-and-mortar stores. The companies relied on a 1992 U.S. Supreme Court ruling that catalog companies need not collect sales tax unless they had outlets in the state.

New York authorities argued that the law aims to “restore a level playing field between in-state brick-and-mortar stores and their out-of-state Internet-only counterparts.”

After New York's law went into effect, around 200 online retailers, including Overstock and Blue Nile, stopped working with affiliates in the state. Amazon didn't drop New York affiliates, but stopped working with affiliate marketers in several other states that passed similar laws.

In recent years, 13 states have passed laws requiring online commerce companies to collect sales tax in some circumstances. Consumers already are supposed to pay state sales tax on all purchases, including those made online, but many under-report their ecommerce activity.

While New York's highest court upheld its law, a similar law in Illinois was recently struck down by that state's top court. In that state, the Performance Marketing Association successfully argued that the Illinois law illegally discriminated against online companies. The Illinois law required companies to collect sales tax if they worked with online performance marketers -- meaning Web publishers that display ads linking to retailers' sites -- but not offline performance marketers.

The Performance Marketing Association, which opposed New York's law, said on Monday that it was disappointed that the Supreme Court won't hear the case. “There are over 80,000 online affiliate marketers in the U.S. who have had their incomes devastated by various states' attempts to regulate interstate commerce,” PMA Executive Director Rebecca Madigan said in a statement emailed to Online Media Daily. In Illinois alone, around 1,000 retailers terminated affiliate arrangements with 9,000 marketers before the law was struck down, according to Madigan.

She adds that the group supports the Marketplace Fairness Act, a bill pending in Congress that would empower states to require online retailers with more than $1 million in sales to collect tax.