New York Legislature Passes “Amazon Tax” Bill into Law: Online retailers must begin collecting sales tax on purchases shipped to New York

We recently posted about the so-called “Amazon Tax” in New York here.  Last night, the New York Legislature passed a Bill that requires online retailers to begin collecting sales taxes on purchases shipped to the state, even if they have no operations or employees working there.  New York Governor David Paterson is expected to sign the measure soon.

The tax will have its greatest impacts on sales which occur through affiliate programs in which website owners place a link to the merchant on their site in order to earn a commission on sales made through their website.  The justification for the tax is to level the playing field between in-state retailers and retailers who are shipping goods into the state, and have thus far avoided having to collect sales tax and transfer that money to the state of New York.  There is no question that this law will be challenged by online retailers through their lawyers and by their web affiliates.  The danger is that others could quickly follow suit in order to increase state tax revenue.  If the New York law is struck down, the risk that other states will follow suit will be reduced. 

The New York Online Retailer Tax is part of the evolution coming from a 1992 ruling by the U.S. Supreme Court in Quill v. North Dakota in which the court ruled that out of state retailers could not be required to pay sales tax if they did not have a physical presence within a state.  With the new law, the legislature is essentially taking the position that online retailers do have a physical presence in the state because they ship goods there.  Internet lawyers will now begin the battle of what constitutes “physical presence.”

Google blog search concerning “Amazon Tax”

Comments

[Jim]

Can't believe it - hopefully it gets struck down soon. If it isn't watch the other states pile on.

[Amazon Challenges NY eCommerce Sales Tax]

New York Gov. David Paterson signed into law on April 15 a provision that will require out-of-state online retailers to collect state and local sales taxes. The measure, expected to raise about $50 million for the state budget, contradicts a 1992 Supreme Court Decision, Quill Corp. vs. North Dakota, that said states are not allowed to require out-of-state companies to collect sales taxes unless that company has a physical presence, such as a store, warehouse, in the state. A provision states that companies collecting less than $10,000 per year from New York residents will be exempt.

The big question is, will the law survive the imminent litigation? And, if so, will the other 44 states that have a state sales tax jump on the bandwagon? Before the ink on the bill had even dried, Amazon.com filed a suit challenging the new law, which is based on a novel definition of what constitutes a presence in the state: it includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon, of course, has hundreds of thousands of affiliates, ranging from big publishers to tiny blogs, that feature links to its products. Amazon says that its affiliates are not agents but simply sites on which it places advertising. The commissions it pays the sites are simply one method of paying for those ads, it argued.