Amazon Sues Over Internet Taxes
New York is trying to collect taxes from online retailers who ship goods to the state, even if they have no brick-and-mortar presence. Amazon is suing, claiming the law is unconstitutional.
Amazon.com has filed a lawsuit challenging New York State’s new law forcing online retailers to collect sales tax on shipments to state residents. On Friday, Amazon filed a complaint in State Supreme Court in Manhattan objecting to the law, which was approved as part of the $122 billion state budget that Gov. David A. Paterson signed last week. The law is expected to raise about $50 million.
The issue is not whether people should pay tax when they buy goods from out-of-state sellers like Amazon. For decades, the state has required them to pay sales or use tax. The question is whether the vendors must collect that tax on behalf of the state. Generally, only those companies that have a physical presence — like an office or store — in the state where the purchase is made are required to collect the tax.
The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates — from big publishers to tiny blogs — that feature links to its products. The state law says that thousands of those have given an address in New York State, although the addresses have not been verified.
I never understood how states could collect sales taxes from out-of-state merchants on purchases that took place elsewhere. If anything, it would seem that the state where the business was located would have the most legitimate claim on sales taxes.
UPDATE: Glenn Reynolds provides a handy link to a law review article he wrote on this subject in 1996. Well, not exactly this subject. The article is entitled, “Virtual Realities and Virtual Welters: A Note on the Commerce Clause Implications of Regulating Cyberporn.” But the issues are very similar.