Amazon.com Strikes Back on New York Tax Law

May 07, 2008 4:01 AM  By

It didn’t take long for a company to challenge New York’s new law requiring online merchants to collect state sales taxes.

Online behemoth Amazon.com filed a lawsuit on May 2 against the state of New York, challenging the law Gov. David Paterson signed on April 15. The law will require out-of-state online retailers to collect state and local sales taxes, though merchants collecting less than $10,000 per year from New York residents will be exempt.

The new law contradicts a 1992 Supreme Court Decision, Quill Corp. v. North Dakota that said states are not allowed to require out-of-state companies to collect sales taxes unless that company has a physical presence, such as a store or warehouse in the state.

New York’s new law, however, says affiliates — those paid a commission for sales on Amazon.com driven from their sites — located in the state constitute a sales force for Amazon in the state, thereby establishing a physical presence. In a complaint filed in State Supreme Court in Manhattan, Amazon contends the law is overbroad, and that its affiliates are not agents, but rather sites on which Amazon places advertising.

New York is the first state to require out-of-state Internet companies to comply with its sales tax law. Amazon.com officials claim that New York’s law violates the equal protection clause of the constitution because it specifically took aim at Amazon.

The Direct Marketing Association’s vice president of government affairs Mark Micali had testified in February in front of both the New York State Senate Committee on Finance and the New York State Assembly Committee on Ways and Means. Micali opposed former Gov. Eliot Spitzer’s legislative proposal requiring out-of-state marketers to begin collecting sales tax on deliveries made into New York, based merely on a link to the marketer’s Website.

When reached for comment on Amazon.com’s suit, Sandy Cutts, the DMA’s public affairs director, reiterated Micali’s previous comments: “We believe New York’s definition of ‘presence’ where this bill is concerned is a Constitutionally-questionable approach, since presence is typically defined as being ‘physical’ presence. For that reason, we believe the sales tax law violates the 1992 Quill decision. Beyond that, however, we’re not commenting on the lawsuit.”