New York Budget With Internet Sales Tax Provision Signed Into Law

April 24, 2008

On April 15, Gov. David Paterson signed into law the Internet Sales Tax provision, as reported by Multichannel Merchant. The Internet Sales Tax provision requires out-of-state retailers such as Amazon.com to comply with New York State sales tax laws and to collect and remit sales tax on sales to state residents. Though the provision is now in effect, out-of-state retailers not currently collecting sales tax that register with New York State by June 1, 2008, will not be penalized for uncollected sales tax up to that point.

New York State has notified the 500 largest online retailers in the state that they need to register and to start collecting sales tax as of June 1, New York Newsday reported. The Internet Sales Tax provision only applies to non-New York State retailers that have $10,000 or more per year in affiliate sales, assuming they do not have nexus in the state through other means (for example, a warehouse or office). Any retailer that meets the nexus criteria but does not comply with the law is subject to audits and is liable for back taxes.

With the budget now signed, the waiting game begins as to whether an online retailer or trade group will challenge the provision in court. Both the Direct Marketing Association and Amazon.com have been vocal opponents of the Internet Sales Tax provision, and, before Paterson signed the budget, each had threatened lawsuits if the provision was included. Just last week, the National Retail Foundation also voiced its opposition to the provision.

"What can happen on these constitutionally questionable laws is often times there is a court challenge," Mark Micali, vice president of government affairs for the Direct Marketing Association (DMA), told Multichannel Merchant. "Certainly, the DMA may try to litigate against this and strike this down. Individual companies can litigate and make the same arguments." He added that, for now, DMA is going to "wait a little bit and see how many companies are affected and how aggressive the New York Revenue Department is as far as enforcing this."

The DMA and Amazon believe the law is a violation of federal law. Micali told DM News that the provision "goes against the spirit of the 1992 Quill versus North Dakota decision," and called the law "an unabashed attempt by New York State government to expand the reach of its tax system across state borders to businesses [that] have no physical presence in the state." Amazon.com Vice President Paul Misener told Newsday in February that the Internet Sales Tax provision is a "new tax" and scolded New York State officials for raising taxes on consumers.

ABA COO Oren Teicher questioned the legal grounds for a court challenge, and noted, "The Internet Sales Tax provision in the New York State budget simply clarifies existing sales tax laws. If there is a legal challenge, we firmly believe the courts will side with New York State. Despite the misleading comments of some retailers who oppose the provision for purely competitive reasons, the Internet Sales Tax provision is not a new tax -- New York State consumers owe tax on all out-of-state purchases, it's merely a question of who collects and remits it. The law states that if you have a warehouse, office, or sales agents in a state, you have nexus in that state. It is indisputable that online affiliates act as sales agents for out-of-state retailers. For the Amazons of the world to contend otherwise is, frankly, quite a reach."

Most large online retailers already collect sales tax on online orders into New York and other states. In a February television interview, New York State Tax Commissioner Robert Megna reported that that eight out of the 10 top e-retailers in the country "are collecting tax for all of the states in which they are doing business. This is not something new and not something difficult for anyone the size of Amazon.com." Amazon Enterprise Solutions, a division of Amazon, already collects sales tax in New York for companies like Target.com. And just yesterday, Tom Szkutak, Amazon CFO, reported that Amazon collects sales or value added tax on 50 percent of its business, though he declined to comment directly on New York State's Internet Sales Tax provision, according to Publishers Weekly.

ABA is now urging New York booksellers and other independent retailers to thank their legislators for including the Internet Sales Tax provision in the final budget. ABA has created a templated, suggested "Thank You" letter to an assembly member and to a senator. "This is a precedent-setting move on the part of New York State, so it is important to thank your legislature for its leadership and support of this key issue," said Teicher.

Booksellers can find their assembly member here and find their senator here. --David Grogan

Topics: News - Bookselling, Sales Tax Initiative, Internet Commerce,