Legal Industry News

January 20, 2009

NY judge Dismisses Amazon.com’s Challenge to Web Sales Tax Statute

A Manhattan, N.Y., Supreme Court justice has dismissed Amazon.com’s challenge to a new New York state tax statute that requires many online retailers to collect state sales tax on purchases by New York residents. Amazon.com filed the lawsuit in April 2008, alleging that the statute violates the Commerce Clause of the U.S. Constitution and the Due Process and Equal Protection Clauses of both the state and federal constitutions.

The state judge ruled that the statute contains the requisite requirement that an online retailer must do a substantial amount of business in New York before it can be forced to collect and remit state sales tax. The judge wrote that the “neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax-collection burden when using New Yorkers to earn profit from other New Yorkers.” The judge opined that Amazon.com did “not come close” to demonstrating the unconstitutionality of the statute.

The “commission-agreement” provision of the 2008 law, Tax Law section 1101(b)(8)(i)(C), subjects transactions by online retailers to state sales tax if companies use independent contractors or other New York residents to solicit sales in excess of $10,000 from New York residents. The state estimates that the law will raise about $50 million a year on Internet purchases by New Yorkers.

Amazon.com would be subject to the law, as it has thousands of “associates” in New York – websites containing links to Amazon.com. Those associates receive “bounties” and other compensation when customers link to Amazon.com from their sites. Currently, 76 of the largest Internet retailers are registered with the state and collecting New York state sales tax – many of them have “associate” arrangements similar to Amazon.com’s.

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