WASHINGTON -- In a surprise move, the U.S. Supreme Court yesterday declined to review a Connecticut high court ruling invalidating a law requiring catalog purveyors to collect taxes on mail order sales.
The court's refusal to hear arguments in the case, Revenue Commissioner v. SFA Folio Collections Inc., further muddies an already murky area of law.
At issue in the case, as well as in similar disputes around the nation, is whether a 1967 Supreme Court ruling outlawing such levies is still valid. The Connecticut Supreme Court, in a ruling in January, cited the 1967 decision as precedent in striking down the tax collection requirement.
But in May, the North Dakota Supreme Court rejected the precedent as outdated and upheld a state law requiring mail-order firms to collect and remit sales taxes on interstate sales.
Currently, 35 states have enacted statutes that require tax collections on mail-order sales. But many of those laws are being litigated, creating a patchwork system.
For example, such taxes have been upheld in North Dakota and Tennessee, but have been struck down in Pennsylvania and Connecticut.
The states are attempting to torpedo the court's 1967 ruling in National Bellas Hess v. Department of Revenue. In that case, which invalidated an Illinois sales and use tax, the court found such levies unconstitutional because mail retailers lacked a sufficient connection with, and derived insufficient benefit from, the state to warrant tax collection responsibility.
In addition, the court said the tax collection duty violated the Constitution's commerce clause because it placed an undue burden on interstate commerce.
But state officials say the court's Bellas Hess ruling cannot properly be applied in today's marketplace because of changing circumstances.
In its petition for Supreme Court review, Connecticut argued that a firm's physical presence is often unrelated to the significance of a corporation's economic presence in a state. For example, SFA Folio Collections distributed 1.3 million catalogs in Connecticut, which has a population of 3.5 million, over a two-year period.
Connecticut also argued that SFA Folio Collections, the mail-order arm of Saks Fifth Avenue, derives enormous benefits from the state in the form of customers. The state also argued that the same technological advances that have propelled mail-order sales in recent years make it possible for firms to easily and cheaply compute state sales taxes.
The Connecticut case arose when the state revenue commissioner informed SFA Folio Collections that it must collect and remit sales taxes on mail-order purchases by state residents.
SFA appealed the assessment to the Connecticut Superior Court, which decided against the state. The Connecticut Supreme Court, citing the Bellas Hess ruling, affirmed the lower court judgment.
Under Supreme Court rules, at least four justices must vote to hear arguments in a case before the high court will place it on the calendar. The court's order yesterday denying review noted that Justice Byron R. White and Justice Harry A. Blackmun voted to hear arguments in the case.
Because the court did not agree to take the case, no national precedent was set. Instead, the Connecticut Supreme Court ruling is binding only within that state. Should the court decide to hear another but similar dispute, such as the North Dakota case, the court's ruling would be binding across the country.
