Amazon Challenges NY State Sales Tax Law

New York recently implemented a law that requires online retailers, even if they have no physical presence in the state, to collect sales tax on shipments to NY residents and businesses. Amazon is challenging the constitutionality of the law, which is known colloquially as the "Amazon Tax."

NY State is basing its law on the fact that Amazon has many "affiliates" with addresses in New York. Amazon pays affiliates a small commission on sales that originate from a link on the affiliate web site. Does this payment make the affiliate an "agent" of Amazon or is the affiliate being paid for what is, in effect, an ad that worked?

cNet reports that a 1992 US Supreme Court decision (Quill v NC) suggests Amazon has a good case. (And with the current make-up of the Supreme Court, I'd put my money on Amazon should the case get that far):

currently limits states' ability to collect sales taxes from out-of-state retailers. It says retailers aren't required to collect sales taxes from customers who live in states where the businesses don't have a physical presence, or "nexus." New York's new statute represents one attempt at getting around those limitations.

States want to get their paws on sales taxes related to online commerce. Bricks-and-mortar chain stores (Wal-Mart, Target, Safeway, etc.) will probably stay mum, since they do have a physical presence and must already collect taxes; online sales are simply an add-on. Expect more challenges like this one, unless Congress intervenes or the US adopts another system for funding most state and local government.

See Issue Overview : Taxes -- A Look at Taxation Principles and Methods