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.”