Amazon.com Sues New York State Over the “Amazon Tax”

By Michael Santo
Editor-in-Chief, RealTechNews

I wrote earlier about New York’s so-called “Amazon Tax,” which would force e-tailers to collect sales tax on purchases made by New York State residents. In the past sales tax collection has only been required of retailers who had a physical presence in a state.

But New York has crafted a new law to force e-tailers to collect sales tax, and Amazon.com isn’t too happy about it. They filed suit Friday in State Supreme Court in Manhattan.

To get around the “physical presence” rule, New York is using a novel addition to their tax code: rather than a physical presence by Amazon.com itself, the new code mandates sales tax collection if a web site advertises say, Amazon.com, and that web site is based in New York.

These could either be huge web sites, or tiny blogs. If the site is based in New York State, links to Amazon.com products, and gets a referral for redirected traffic (the site is one of Amazon’s affiliates, in others words), that qualifies as a “physical presence” for Amazon.com.

This is an extension of an already existing law which states that companies employing independent agents to solicit business must collect taxes for the state.

Amazon.com’s lawsuit argues the following:

• The statute is overly broad and vague.” It is impossible, Amazon.com asserts, for it to determine which of its affiliates are actually in New York State. My thought is it would be pretty difficult, but not impossible.

• Amazon.com also states in the lawsuit that its affiliates are not agents, but simply sites on which it places ads. I agree, because how is this really different than a newspaper ad, for example?

• Amazon.com also uses the fact that legislators foolishly nicknamed this the “Amazon Tax,” stating that the law violates the equal-protection law of the Constitution. They say, “It was carefully crafted to increase state tax revenues by forcing Amazon to collect sales and use taxes.”

It should be noted that although the nickname of this law is the “Amazon Tax,” it’s not solely focused on Amazon.com, but with Amazon.com huge number of of sales - and affiliates - well, you can see where this is going.

Amazon’s suit seeks a declaratory judgment that the law is invalid.

The argument has always been that with the myriad of sales tax codes around the country, it would be impossible for a retailer to keep up with all of them. In fact, in a 1992 Supreme Court decision, Quill vs. North Dakota, the Supreme Court ruled that out-of-state retailers cannot be required to collect sales tax on purchases sent to states where they did not have a physical presence.

We Say: The question is, will this new approach to physical presence pass legal muster? It’s well-known that states are feeling the pinch of loss of sales tax revenue, as more buy online. They will all be watching this carefully.