Amazon Sues Over Law That Forces Them To Collect NY Sales Tax

Amazon has filed a complaint in NY’s State Supreme Court challenging a new law that forces the retailer to collect sales tax on shipments to residents of NY state.

The New York Times explains:

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.

The law says that if even one of those affiliates is in New York State, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate.

Amazon is challenging the constitutionality of this interpretation of the law and claims that the statue is “overly broad and vague,” says the Times. They also claim that the law is unconstitutional because it was written specifically for Amazon, thus violating the 14th amendment.

Amazon Sues Over State Law on Collection of Sales Tax [NYT]
(Photo: Guillermo Esteves )

Comments

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  1. digitalhen says:

    damn right

  2. Ron21 says:

    I sure hope the Amazon wins.

  3. HeartBurnKid says:

    Sorry, New York, I know you guys think you’re the center of the universe and all, but believe it or not, you have no power to regulate interstate commerce.

  4. speedwell (propagandist and secular snarkist) says:

    My God, the implications if they lose. It’s not just a New York issue.

  5. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    Ditto, but expect to see more insane interpretations of the Interstate Commerce clause.

  6. bohemian says:

    South Dakota thought they were going to do this too until they remembered the entire state only has 750,000 people.

    It is a horribly written law that will never fly.

  7. Pennsylvanian123 says:

    @speedwell: Oh yeah, this is the pebble that will bring on the landslide. States are so broke at this point that they’ll try anything to get some jack into the coffers. Desperate times.

    I hope that Amazon prevails.

  8. akalish says:

    @Ron21: Me too! I live in NY. :)

  9. Atsumi says:

    Way to go, Amazon!

  10. StevenJohn says:

    Actually the law was written for ANY online company that sells more than $10k into the state and uses affiliates to generate those sales.

    Amazon is the biggest fish in that pond, but they are not the only fish in that pond. Bottom line, the law was not written specifically against Amazon.

  11. FLConsumer says:

    I hope Amazon wins on this one as well. NY State’s basically said word-of-mouth now constitutes having a full business presence. Scary.

  12. Cattivella says:

    Ugh, we had a somewhat similar situation with one of our clients, but on a much smaller scale. They delivered maybe one shipment a year into a city. The city had hired a firm that tracked down people and companies that owed them money. This company went after our client for about $3k in fees for doing business in that city without having a business permit from that city.

    We ended up settling for a much smaller amount, but our client will never do any kind of business in that city again.

  13. thalia says:

    Dammit I love Amazon!

  14. differcult says:

    Stupid logic on NY parts….if this passes, what about all eBay sales?

    This is going to hurt NY more than it will help them.

  15. Orv says:

    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.

    Yes, although in practice there’s no way to enforce this tax. Michigan had it too, when I lived there, and literally almost no one paid it. It has to be the most widely flaunted tax in existence.

  16. snazz says:

    @HeartBurnKid: umm, this has nothing to do with new yorkers, amazon is bringing the issue. and they are basing it on Equal Protection since its only aimed at amazon. it has nothing to do with (your) perceived elitism of new yorkers.

  17. Skiffer says:

    @HeartBurnKid: What part of this has anything to do with regulating interstate commerce?

    It’s purely an administrative (i.e., financial burden) issue.

  18. Another tax for us? Dammit.

    Generally, don’t mind paying taxes, but this is a little below the belt. Isn’t it bad enough we pay the highest Gas Tax in the WHOLE United States?!?

  19. Bladefist says:

    Go amazon go!

  20. mac-phisto says:

    @differcult: that’s what i was thinking & that’s why i believe ny should lose. if amazon can prove that other merchants are still not liable for collecting taxes, then ny would by violating equal protection.

  21. aront says:

    So if Amazon loses, what happens when every state creates a law like this? Will Amazon have to collect sales tax for every state for every purchase bringing the total purchase to astronomical heights and thus putting Amazon out of business?

    Wow.

    Another example of an American government overstepping its bounds and crippling big business.

  22. Skiffer says:

    @verucalise: Again, people – it’s not about imposing another tax!! You are still supposed to pay sales tax on all online purchases, for pretty much every state – it’s just called use tax instead of sales tax.

    Now granted, no one ever pays it and it’s pretty much unenforceable – but please don’t laud Amazon for facilitating your own tax evasion.

  23. Munsoned says:

    I almost think that this deserves a “Help Amazon Give NY the Finger” legal fund. I would donate a few bucks…

  24. Bladefist says:

    @aront: I agree. But we’re talking about New York here, so I mean, no surprise here. Liberals want their taxes anyway they can get them.

    Whats going to happen if Amazon loses is, Amazon is just going to lose a lot of NY business. The government isn’t going to take in much revenue, and is just going to punish Amazon for being a retail store.

    If I was Jeff Bezos, I’d block all NY IPs. lol. Ok no I wouldn’t, but that would be hilarious.

  25. cpalifer says:

    @ Skiffer is right, there is a line on every state form asking for you to voluntarily pay sales tax on Out of State purchases. Which no one does. Which has led to less sales tax collected by states. Which has led to states tryinf anything, including this law suit, to get mo sales tax. I predict it will get worse.

  26. Saboth says:

    @HeartBurnKid:

    Amen to that. They can take their high taxes, unreasonable fines and fees and crap they levy on people that live there, and shove ‘em.

  27. arcticJKL says:

    @Skiffer

    New York is trying to tax sales that take place in other states and/or that crosses state lines – hence interstate commerce.

  28. speedwell (propagandist and secular snarkist) says:

    @Saboth: Double Amen. Wasn’t it a US Supreme Court justice who once said Americans have a civic duty to pay as little tax as they legally can? “Legally,” in this case, I read as marching on fricking New York with pitchforks if it looks like Amazon is losing.

  29. tande says:

    @arcticJKL: No, NY is trying to shift the the burden of collecting and reporting only from the consumer to the vendor. The consumer always “pays” the tax. The question is who reports it.

    New York consumers are always “required” to pay the tax. They recieved the property in that state. They aren’t sales taking place in other states.

  30. My keyboard has a typo key says:

    I wonder why they are not going after the other online retail behemoths like newegg, buy and overstock.

    It does look a little targeted to me.

  31. Bladefist says:

    @twiddling_my_thumbs: the state member who is in charge of this must have gotten an xbox game in a huge box from amazon.

  32. Buran says:

    @Bladefist: Make that “governments” instead of “liberals” and I’m with you, but as-is it’s just a partisan bash-fest.

  33. snoop-blog says:

    Interpretation is a bitch. Them bitches can read it to say whatever they want.

  34. tande says:

    You know, it would be pretty easy for just about any state to use the affilate program loop hole.

    Target would get just about every state out there wouldn’t it. See thats where I think that the NY law isn’t that flawed.

    I buy a book, cd, movie, from amazon. No tax.
    I buy a book, cd, movie from Target.com who uses Amazon.com to fill and ship their orders. Tax.

    I think that the internet, much, much more the catalog sales require a re-examination from the supreme court on what counts as nexus.

  35. latemodel says:

    Many states are entering into agreements to require all online purchases be charged the appropriate sales tax, thanks to the voluntary invlolvement of the major CC companies. After all, the CC companies receive a percentage of the total sales transaction amount.

    [www.streamlinedsalestax.org]

  36. Daniel-Bham says:

    I agree with Amazon. I much prefer the self-reporting system that is in place currently, where those of us who are law-abiding citizens report ourselves and send off a check to our state revenue department each year.

  37. bohemian says:

    @aront: Not only if Amazon now had to collect and process sales tax for every state but every small online retailer would have to.

    The burden it would create for a small sometimes one person online presence is astronomical. Many states require paperwork and funds be filed every 30 days. Some states also have city taxes mixed in so now you have to figure the city tax for every single sale also. Just in SD we have pages of two horse towns that all have a different city tax rate.

  38. Trowble (XBL/PSN) says:

    Amazon has a good case on their hands. I sure do hope their lawyers are up to snuff.

  39. dabub says:

    @verucalise: But you can go across the border and fill up in NJ with the lowest gas prices in the US! Full service too!

  40. chrisjames says:

    @aront: No, only for the state it’s being purchased in, and possibly the state it’s being purchased from. That’s two taxes, which essentially adds to a sales tax and a use tax, which many, if not all states already levy on goods. I buy a harmonica in GA, then take it home to MA. I pay sales tax in GA, and use tax (if I report it) in MA.

  41. Orv says:

    @chrisjames: In most states use tax only applies if you didn’t pay sales tax on the original purchase. I don’t know how it works in MA, precisely, but in MI if I bought it in a state that charges a sales tax equal to or higher than Michigan’s, I don’t owe squat. This is for retail items. I think it’s a little different for titled assets like cars and airplanes.

    The reason for laws like this, besides recovering lost revenue, is otherwise local businesses are put at a disadvantage. Why would I buy something locally and pay sales tax if I could mail order it tax free?

  42. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    @Daniel-Bham: So that’d be, I suppose, you and three other people? :)

    Shirking taxes is the American way after all.

  43. Tmoney02 says:

    @Orv:

    “Why would I buy something locally and pay sales tax if I could mail order it tax free?”

    Well the usual response to this would be: Because you have to pay shipping to mail order something and that is usually around the same amount as the tax. Sometimes more, sometimes less.

  44. chrisjames says:

    @Orv: I don’t know about MA, it was just an example. Looking it up it says use tax is levied on all goods brought into the state, but the amount of sales tax paid in other states is deductible. The definition of use tax is just a tax levied on items used within the state of residence when no sales tax is paid to the state of residence.

  45. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    @Orv = “Why would I buy something locally and pay sales tax if I could mail order it tax free?”

    Because of a local store’s superior service?

  46. FYI–I have an Op-Ed on this in today’s Newsday:

    [www.newsday.com]

    The law isn’t only targeted at Amazon; it targets all online retailers who use affiliate programs and have quarterly sales of greater than 10,000. You can actually read the text of the law here:

    [assembly.state.ny.us]

    The relevant part is Part M, on page 32 of the text. Oh, and you can find Amazon’s complaint at:

    [blog.wired.com]

    {ProfJonathan}

  47. rydel says:

    I hate tax-happy New York. First we get hosed on gas prices, and now they’re taking over interstate commerce. Sales tax is 8% here, which is utterly ridiculous.

  48. dreamcatcher2 says:

    @HeartBurnKid: I don’t think New York is disputing that. However, they are missing out on a large part of the tax income which without the internet they would have otherwise collected (people would have bought more books from in-state brick and mortar stores). Having realized that, and being in a pinch, they are testing out the possibility that this ISN’T interstate commerce. After all, Amazon has thousands of paid agents with New York registered as their place of business.

    If I were Amazon, I would have simply required that all of my affiliates not have a New York address. Sure, there would be some brief hiccups, but I’m sure mail-forwarding services exist, and Amazon does not want to risk a loss here.

  49. Juggernaut says:

    Recently a NC boating company had a truck transporting boats to a destination in Maine was detained. There was an outstanding tax lien against the company which claimed that the owners owed sales tax because of dealerships in NJ selling their product. They held the truck and load hostage on the weekend until the company forwarded a cashiers check for the total amount due.
    [www.sbtdc.org]

  50. Orv says:

    @Applekid: Very few people are willing to pay extra for service. Most people shop only on price.

    @dreamcatcher2: That would be tough, since Borders is an Amazon affiliate, and Borders is primarily a brick-and-mortar retailer.

  51. Bladefist says:

    @Buran: I’ll concede to your statement, but add, that republicans, if acting like republicans, would not be behind this.

    Unfortunately politicians lose their way and do not uphold the morals of their party. Less Taxes is at the very base of the republican party, and any increase in tax, goes against party values in my opinion. A lot of republicans follow this, a lot dont.

  52. Orv says:

    @Bladefist: It’s awfully convenient how you lump all Democrats together, but then claim that any Republican who doesn’t agree with you isn’t a “real Republican” and doesn’t count…

  53. @dabub: Oh, thanks for rubbin that in my FACE, haha. Sorry, I live approximately 3.5 hours from the closest Jersey line (Adirondacks, here)

    But the next time I visit family on the island, I’ll make sure to take ya up on that offer!

  54. azntg says:

    Totally Expected. I hope Amazon wins this one.

    It’s another one of New York’s silly ideas, like the Congestion Pricing in NYC. Keep this up New York and our 20 year relationship will be finally be over.

  55. plustax says:

    This will be fun I tell you what. I knew it’s been too long since the Supreme Court’s case of Quill Corp v North Dakota went down in 1992. I knew there had to be another state to take this on sooner or later. I figure it had to be one of the big ones if they were going to be successful this time. I’m surprised California didn’t take the lead on this one. Sending in North Dakota on this battle in 1992 by the states is like making your retarded cousin taste the expired milk to see if it has soured. This case will undoubtedly go to the Supreme Court and set precedent for every other state that holds to ND v Quill related to sales and use tax laws. If the Supremes rule in favor for the Empire every other state will back up money truck at online retailers all over the country asking for their share.

    The other alternative would be for the states to start requesting the sales records of each Internet company and start sending out bills directly to taxpayers. I’m not sure if I really want the state to have official record of my purchases all in the name of collecting tax. The nice thing that in CA and in a handful of other states it is the responsibility of the last seller to collect the tax and if they didn’t the state does not go after the end user but in most other states they go after whoever they can. I had to deal with NY several times and they have no mercy.

  56. plustax says:

    This has to be a tough spot for Amazon is in at the moment. If you don’t collect the tax you get dinged by the states but if you collect too much from your customers that opens up a annoying class action lawsuit on them. In reality it would not be too difficult for Amazaon to collect and remit the sales tax on behalf of their customers to the state but I’m sure they don’t want to lose that competitive edge they’ve created over the past several years concerning their affilates. Borders.com was brought down in flames by the State of California Board of Equalization which prompted the Michigan based retailer to partner with Amazon to sheid themselves from their sales tax liability obligations across the country.

    Borders tried the ole let’s set up a seperate legal entity so therefore these are unrelated companies where the online retailer has no nexus. Their grand plan failed when the brick and morter Borders started to take back books from the online store acting like they were the same company. Opps. Other smaller retailers have learned from that and have done the same thing but insist that online sales must be returned to the online retailer. Great idea but a few states said nope, try again, saying that because of intelectual property existing within the state was enough to gain someone a hot plate of South Carolina Nexus.

  57. StevenJohn says:

    My understanding of Quill was the decision of sales taxes on interstate transactions was left to the Congress and as Congress had not implemented such laws the Quill decision would stand.

    In other words the Supreme Court left the door open for the opportunity to tax these sales, Congress has been slow to do so.

    Ultimately the needs of the states will eventually win this battle.

    One proposal floating around is to tax goods based upon the point of origin regardless of destination Ship from Alabama to New York, pay Alabama sales tax.

    There are some states are opposed to that proposal as they only get to tax the goods that leave their state. A small, lightly populated state with few business engaged in internet/ mail-order sales, or a state without a sales tax would be tax deficient compared to other states.

    All things considered, Congress is going to act in favor of the states.

  58. sisedi says:

    Oh wow I just now finally just figured out the Amazon logo, thank you consumerist. It’s not just a smile, it’s A to Z…ahh I feel better.

  59. plustax says:

    @StevenJohn: Sorry to geek out more Congress has refused to get involved in diving into state and local politics. The last thing we need is a national sales tax on top of all of the other federal taxes we pay.

    Also Congress has been waiting to see what happens with the Streamline Sales Tax Project. It’s not going as well as the original framers of that movement would have imagined. It’s been the big retailers like Wal-Mart and Target that have taken the lead in making sure that project doesn’t die and get all of the states to play along to simplify the entire sales and use tax process.

    As far as destination based taxation is concerned I believe that is a bad idea and goes against why sales taxes were implimented in the first place. Sales taxes are collected for the benefit for those that pay them in thier local communities. If you switch to a desitnation based tax system many states, counties, cities and taxing disctricts will suffer greatly. That’s been one of the big sticking points for SSTP.

    We really need to make sure Congress does not get involved in this game. We’ll be paying a GST and PST type tax in no time flat.

  60. TheRealAbsurdist says:

    @Bladefist: BWAAA, HAHAHAHAHAHAHA!!!

    Know any “real Scotsmen,” while you’re at it?

  61. arcticJKL says:

    @tande
    Im confused. I thought NY was telling New Yorkers that if they bought something online from Kansas that they ( the New Yorker) had to pay a tax on it. (I think we agree there)

    Now NY is asking Amazon to collect the tax for NY. So Amazon is suing them to stop.

    What argument does Amazon have for not collecting the tax other than the fact that NY can not tax Kansas purchases or ask Kansas stores to tax goods for them. Except maybe that Kansas is not in NY’s jurisdiction?

  62. Bladefist says:

    @Orv: Republican is something you can look up, and find the ideals on. It’s researchable.

    If you have a republican who wants to raise taxes, then you have someone going against the code. That’s like saying your Christian, but you dont believe in Jesus.

  63. mikelotus says:

    @aront: Barnes and Noble collect the taxes. IBM collects the taxes. What’s going to happen? They’ll collect the taxes.

    Sellers in the market place on Amazon include NY residents. Amazon will probably loose this case.

  64. Phildawg says:

    lol I think it’s funny that people still don’t realize the only reason the internet isn’t taxed is because of it can’t or shouldn’t be… it’s not taxed because of republicans.

    GO OBAMA GO HILLARY RIGHT???? BUSH SUCKS!!!

    Well come this fall, depending on who wins, is whether or not we will see internet tax throughout the US within the first couple of years.

  65. Phildawg says:

    if the only reason why e-commerce exist is because of tax evasion, it deserves to die…

    however, get off your soapbox and quit being ignorant… do you realize how much it costs to operate a brick and mortar store???

  66. Me - now with more humidity says:

    IANAL but IIRC, there is precedent for this in professional sports. NFL players are paid by the game, and they have to pay income tax in states and cities where they play.

  67. Byzantine says:

    Why isn’t Amazon suing in federal court?

  68. SteveBobo says:

    Living in NYC sucks!!!!
    A pack of cigs will soon cost $7.50+
    The Gov needs more money…add a extra tax to all these “tourists” from the UK and Japan that come into NY to take advantage of our weak dollar…there are thousands of them spending major bucks, a little more from them won’t kill the golden goose.

  69. witeowl says:

    I don’t think many of you are aware of, or paying attention to, the fact that residents in most (all?) states (including NY) are required to pay an equivalent to sales tax on purchases they make online or otherwise untaxable purchases made out of state. That’s what use tax is.

    This isn’t a new tax or “another” tax; it’s an attempt to enforce a virtually unenforcable, but already existing tax.

    Consumerist, is it time for a “tax evaders” tag to supplement the “bad consumer” tag?

  70. Charred says:

    Good luck Amazon, let’s set a good precedent here.

  71. LUV2CattleCall says:

    @Byzantine:

    Can you imaging how much it would cost to ship all those lawyers out to wherever those courts are? Even with Prime shipping.

    …and I’m done!

  72. @Skiffer: Thanks for clarifying, I meant that HAHA! Just a lil crazy thinking about $4.00/gallon gas…

    can’t sleep, taxes will eat me….

  73. UnicornMaster says:

    I think some legislators wanted to increase state revenue and looked at the nation’s largest online retailer. Affiliates are not stores or salesmen, they’re just websites, so it shouldn’t matter where they are located. If Amazon started collecting taxes everywhere their value proposition would tumble and that, combined with waiting for and the cost of shipping would put them out of business. And then revenue for FedEx and UPS would fall damaging the nation’s economy even further. Thanks NY being the cause of this country’s demise.

  74. plustax says:

    @Byzantine: Because this is not a federal tax issue it is a state and local tax issue. You may say that because they are arguing about the whole 14th amendment and all which is a federal issue. They will first try to get the state count to hold to their position that the STATE law is vague and therefore not valid under state laws. If the court find for the state then the next logical step would be to take this to federal court which will then lead this up to the Supreme Court who will rule on the matter and the issue’s conclusion.

    Patience young grasshopper, this is not the last we’ll hear about this one anytime soon. I’m geeking out over this thing and can’t wait to hear all of the arguments over the next several months if not years.

  75. hackel says:

    The U.S. really just needs to adopt a standard Value Added Tax system like just about every other developed country in the world. Unless the sales tax is eliminated, if you buy something, you should pay tax on it. No skirting the law through these interstate commerce loopholes. It’s offensive that so many people on this thread are proud of their apparent disregard for the law and tax-dodging.

    Obviously no one wants to pay more than they have to, but if you don’t want a sales tax, then you need to get rid of it through political means.

    Also to those of you whining and complaining about a mere 8% sales tax, get over yourselves. Most of the rest of the world pay 15-20% tax and are doing much better as a result. The U.S. has some of the lowest taxes in the world, I’m so sick of people complaining about it! It’s no wonder the country is going down the tubes.

  76. StevenJohn says:

    Actually we all can move to a state with Zippo sales tax to avoid this little sales tax problem. I believe there are 7 such states without a sales tax.

    Don’t worry, those states still get their’s. Toll roads combined with higher car tags, income and property taxes do quite well to offset for the lack of a sales tax.

  77. Keat says:

    @arcticJKL: “Now NY is asking Amazon to collect the tax for NY. So Amazon is suing them to stop. What argument does Amazon have for not collecting the tax…?”

    The problem is what happens when all the states ask Amazon (or any other online seller) to collect the taxes. There are different rates for different items in different counties of different states. There are thousands of things to keep track of.

    Keeping track of all of that would be a huge and expensive undertaking and would kill a lot of smaller sellers.

    The original supreme court verdict was based on the notion that states requiring vendors to collect taxes would represent an unfair burden and that’s exactly what it would be.

    Create a simple, uniform way to apply sales tax and there’s no problem. But as things are, we cannot have states requiring online and mail-order sellers to be their tax collectors.

  78. Byzantine says:

    @plustax: I don’t think it should be in federal court because I thought it was a federal tax issue.

    This is a diversity issue. NY state is trying to apply a tax to sales through a company who has a principal place of business somewhere else.

  79. slowenuff says:

    Thank god I live in oregon where theres no sales tax.

  80. Daniel-Bham says:

    @Applekid: Hey, don’t lump me in with those people. I was just being sarcastic. ;)

  81. gqcarrick says:

    Thank you Amazon!