Talking Use-Taxes

Out-of-State Online Retailers must now collect state and local taxes from customers in New York, thanks to a provision New York Gov. David Paterson signed into law in April.

So what does the new law mean to multichannel merchants? We asked Carla Yrjanson, vice president of Sabrix Tax Services, the tax information services division of tax management systems provider Sabrix, for her take.

What is your take on the new law? With the advent of the Internet, the concept of nexus (a physical presence — store, a warehouse, or sales reps in that state) was destined to be challenged at some point. The states want to increase their revenue and attain the largest percentage of voluntary compliance.

Affiliate nexus is the next natural step for the states to pursue. In their view, this change levels the playing field between Web retailers and the brick-and-mortar companies in New York.

How will this law be enforced? New York is implementing two vendor conditions that must be met before a business is considered to be a New York vendor. The first condition is that the business enters into agreements with New York State residents in which the resident directly or indirectly refers potential customers to the seller.

The second condition is cumulative gross receipts of more than $10,000 during the preceding four quarterly sales tax periods from the sales to New York customers as a result of referrals to the seller by the seller’s New York representatives. Both of these conditions are difficult to determine and require continual monitoring.

What if more states adopt similar laws? The New York tax law could trigger a domino effect in other states that will change sales tax laws for Web retailers. This will result in the need for online merchants to file tax returns in many more states than in the past.

The new laws would add a burdensome level of sales and use-tax complexity to most Internet retailers. It will be especially hard for merchants with revenue under $200 million, which usually don’t have the systems to manage a complex multichannel, multistate sales and use-tax process.

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