NY Court Dismisses Amazon.com's Challenge to Invalidate Nexus Tax Statute

Holding:

The Supreme Court of the State of New York has held that an online retailer's use of in-state affiliates creates substantial nexus for purposes of collecting sales taxes. In so doing, the Supreme Court dismissed plaintiffs Amazon.com LLC’s and Amazon Services, LLC’s (“Amazon”) constitutional challenge to a state tax law. This statute required collection of New York taxes from New Yorkers by out-of-state sellers that contractually agree to pay commissions to New York residents for referring potential customers to them. Here, the Supreme Court rejected Amazon’s argument that it lacks substantial lexus to New York, stating that it chose to benefit from New York associates that were free to target New Yorkers and encouraged Amazon sales. On the equal protection claim, the Supreme Court held that the complaint was devoid of any assertion that the State of New York has actually treated it any differently than others that are similarly situated. In this regard, the Supreme Court concluded that the questioned tax provision does not broadly tax any and all internet sales to New York consumers. It requires a substantial nexus between an out-of-state seller and New York through a contract to pay commissions for referrals with a New York resident along with realization of more than $ 10,000 of revenue from New York sales earned through the arrangement.

Detailed Summary:

In 1995, Amazon began to operate a retail internet business. Its goods were sold online and shipped to buyers worldwide, including to New York. Amazon did not own property in New York or maintain any New York offices. None of its employees worked or resided in New York.

Amazon created an “Associates Program,” which allows participants (“Associates”) to maintain links to Amazon.com on their own websites and compensates them by paying a percentage of the proceeds of the sale. Amazon also offered incentives to Associates that “directly refer” customers to its Amazon Prime program through website links, paying them a “$…

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