Amazon Required To Pay New York State Tax… Who’s Next?
By Anna Johnson on January 14th, 2009A New York Supreme Court judge, Judge Eileen Bransten, has approved the state’s so called ‘Amazon Tax’ and thrown out lawsuits brought by online retailers, Amazon and Overstock.
New York introduced the law in April 2008 in an effort to recover sales tax on goods and services sold to New York residents by large online retailers. Previously, only retailers residing in New York were obliged to collect the tax. The new law extends to large, non-resident online retailers if they maintain affiliate networks in the state.
To be specific, back in April, the New York legislature enacted the ‘Commission-Agent Provision’ to require out-of-state retailers to collect and remit sales and use taxes if they have a commission agreement with an in-state resident based on the referral of customers, provided that resident earned more than $10,000 in revenues from New York State residents.
The law was largely enacted to overcome a 1992 decision by the U.S. Supreme Court that retailers need NOT collect sales tax unless they are physically located in the state where the customer resides, and that, in such cases, customers must declare the tax on their tax returns. Evidently, few customers voluntarily add up all the sales tax they owe on Internet based purchases, which has probably prompted New York to introduce its law.
Amazon challenged the law on the basis that, among other things, having affiliates in New York did not establish a sufficient nexus between it, as an out-of-state retailer, and a New York based customer. However, Judge Bransten said there WAS a sufficient nexus where goods were sold to a New York based resident by way of a New York based affiliate.
Overstock’s case was dismissed on practically the same basis and both Amazon and Overstock are likely to challenge the rulings. If so, the matter will go to the New York State Supreme Court Appellate Division, and if further appealed, to the New York State Court of Appeals and then to the U.S. Supreme Court.
For now, based on Judge Bransten’s decision, the law is that where a New York based affiliate earns, based on sales to New York based residents, more than $10,000 in affiliate commissions from one merchant… that merchant must collect and remit the New York state sales taxes related to those purchases.
While the numbers involved may preclude many ‘small’ merchants from being caught by this law, there’s no reason why other states – or indeed other countries – can’t establish similar, but more onerous, laws.
You can imagine how complicated it could get for merchants with affiliates in multiple jurisdictions where similar laws apply.
And while it’s one thing to require merchants to collect sales tax for sales made directly to them – for example, Australian businesses must collect goods and services tax (GST) for sales made to Australia residents (online or offline) – it’s another to require them to also account for affiliate sales as well.
What can I say? Dontcha love it when Governments offload their tax collection duties – and the considerable associated administrative burdens – onto businesses?
Collecting sales tax from individuals may be a problem… but why is it OUR problem?
Sources: Erick Schonfeld, “New York Court Dismisses Amazon’s Objections To Paying State Taxes,” TechCrunch, January 13, 2009, Timothy Prickett Morgan, “New York judge OKs Amazon Tax,” Channel Register, January 12, 2009
