New York Goes Gangsta With Tax Law

    May 6, 2008

Online retailers doing business in New York will be required to register with the state beginning June 1, 2008 to collect taxes, or face audits for prior quarters for failing to register. is suing the New York State Department of Taxation and Finance (DTF) over a new state law that requires Internet retailers to collect sales tax on purchases shipped to state residents.

Amazon has argued that since it does not have a physical presence in the state that it should not be required to collect taxes on shipments going to New York. "Amazon has no physical presence in New York," according to the suit. "It does not own, lease, or otherwise occupy any physical property in the state, and none of its employees works or resides in the state."

In addition Amazon says the New York law is unconstitutional based on a 1992 U.S. Supreme Court ruling that claims states are prohibited from requiring out of state retailers to collect sales tax unless the company has a physical presence in the state.

In the Quill v. North Dakota case, the Supreme Court re-established the rule that a state could not impose sales tax collection on a business unless the company had employees or property in the state.

New York defends the law by arguing that the Amazon Associates program, which allows Web site publishers to receive commissions by promoting Amazon items through their sites make Amazon liable to collect taxes on its behalf for those affiliates who live in New York.

One piece of bright news for Amazon and other online retailers is that the state of New York is not seeking back taxes. Tom Bergin, a spokesman for the state Department of Taxation and Finance told WebProNews,"The legislation provides for a limited amnesty for online sellers who register as sales tax vendors and start collecting taxes by June 1, 2008."

"If the seller registers and starts collecting sales tax by June 1, the seller will not be liable for tax not collected for sales tax quarters prior to June 1. Conversely, if you don’t register and it is later determined that you should have, you could be subject to tax dept audit for quarters prior to June 1."

Brick and mortar companies are generally supportive of the "Amazon Tax," saying it levels the playing field by forcing online retailers to collect state sales tax. The down side is that it could potentially mean fewer sales for online retailers.

The choice between paying $100 for an item or $108 would definitely affect the sales of other online merchants besides Amazon. In an increasingly uncertain economy the consumer cannot afford frivolous spending.

If the New York law is upheld, you can be sure a whole host of other states will follow its example and implement similar laws. The New York law is projected to generate $50 million in revenue this year and $73 million next year–an amount that any cash-strapped state would be happy to collect.