How Newegg Stopped Collecting New York State Tax

Reader Chris Schiffner pinged Newegg to see why and how they stopped collecting New York State tax. They sent him an answer, posted after the jump, but here’s the short story: A new New York law would have required internet retailers using affiliate marketing to collect sales tax, so Newegg “restructured its affiliate marketing program.” The new structure somehow avoids having to collect New York sales tax. Shrug. Whatever, New York geeks, rejoice!

Newegg’s official statement:

Earlier this year, New York State passed a law which potentially forces non-New York State internet retailers to collect and remit New York State sales tax if the retailer’s marketing affiliates engage in certain marketing activities targeted at New York residents.

In response to this law, on June 1, 2008 Newegg.com (“Newegg”) began collecting sales tax on its sales to New York State residents.

Since then, New York State tax authorities have issued additional guidance as to the circumstances in which internet retailers would be required to collect sales tax. Based on this guidance, Newegg has restructured its affiliate marketing program in an effort to ensure that Newegg is not presumed under New York State law to have to collect sales tax.

What this means to our New York State customers is that, effective 12:00 a.m. Eastern Time on August 21, 2008, Newegg will no longer charge sales tax on its sales to you. However, please be aware that you may still have an obligation to pay New York use tax on your purchases. (Use taxes are not charged or collected by Newegg but are paid directly by purchasers to the appropriate taxing authority.) Newegg cannot offer you any tax advice, so if you have any questions about whether you have to pay use tax, please consult an appropriate tax professional.

Disclaimer: Nothing in this email shall be deemed an admission that Newegg has ever been legally required to collect and remit New York State sales tax on its sales to residents of that state. Newegg continues to challenge the validity of section 1101(b) (8) (vi) of the New York State Tax Law.

Newegg stop collecting sales tax: Additional Details [Schiffner]

PREVIOUSLY: Hooray! Newegg Stops Collecting New York Sales Tax
(Photo: Matt & The Camera)

Comments

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  1. varro says:

    Use taxes. That’s a good one.

    (Was just at the Jantzen Beach/Hayden Meadows Big Box area, where Washington residents go over the Oregon border to avoid their state sales tax.)

    • @varro: Use taxes are and end run-around for sales tax. In WA State for example if you run a paving company, and that company paves your home driveway for you, you are obligated to pay a “Use Tax” on any materials consumed during the construction. Technically it is a completly different taxation than sales tax, here it just happens to be the exact same amount as sales tax. This is also applied to good purchased from outside the sales tax jurisdiction.

      Essentially it boils down to if it is a consumer product, and you are the end consumer, and you didn’t pay sales tax, then you owe use tax on it. I remember this being a big deal in WA when Gates purchased the Codex Leicester (then the Codex Hammer). He asked the state if they would wave the use tax on his 30.8 million dollar purchase if he put it on public display. The state refused, Gates paid, but the REAL hullabaloo came from other high-end art collectors who were pisswed at Gates for making the Use tax current information, and that the state might now try to collect on.

    • MercuryPDX says:

      @varro: Only when it saves more than it will cost me in gas to get there… $100 minimum. :)

  2. This is what NH is to MA residents!

  3. Skankingmike says:

    ok.. how about New Jersey now?

  4. Mykro says:

    Just more proof that newegg is the shizzle fo rizzle.. SnoopBlizzle, you here my nizzle!?

  5. BrianDaBrain says:

    Use taxes are… what exactly? Is NY trying to tax residents for the privilege of using stuff? But kudos to Newegg for dodging the tax bullet.

  6. weakdome says:

    I always giggle at the section on my tax forms that asked if I “purchased anything out of state or on-line” and I say “no”

    • nicemarmot617 says:

      @weakdome: Hahahahaha, me too! I see no reason why I should be more honest with the IRS than I absolutely have to be to avoid serious trouble. Hell, I wouldn’t pay taxes at all if I thought they wouldn’t notice. I really object to my money being spent on killing innocent people and bailing out companies that deserve to die due to their own scammy practices. Oh, not to mention Social Security. Every paycheck I’m reminded that my grandmother, who has over $2 million stashed away in a bank, lives off the cash from her Social Security check. Oh yeah, and she uses Medicare too.

      • weakdome says:

        @nicemarmot617: Is she single?

        • nicemarmot617 says:

          @weakdome: If by “single” you mean “widowed” then yes. But she’s also completely and utterly insane. Oh yeah, and she lives with my even-crazier, gun-owning aunt who is not even her daughter, but is determined to get every penny of her cash when my grandma dies.

          Yeah, elder abuse isn’t a topic we hear much about on Consumerist.

      • RandomHookup says:

        @nicemarmot617: Actually, it’s not the IRS. It’s your state Dept. of Revenue or what it might be called that collects these taxes.

    • @weakdome: I would say yes, then say I bought porn online. If they ask what kind of porn, tell them that it’s none of their business. Gadget Porn is a majority of my budget.

  7. What Newegg has likely done (along with many other affiliate marketers) is to follow the guidance of the NY Department of Taxation to get NY affiliates to agree in writing not to market the links, and to certify each year that they are living up to that agreement. Details on this process are here. {ProfJonathan}

    • Haltingpoint says:

      @professorjonathan: Thanks for some much needed additional info on the subject. As an affiliate marketer (not promoting Newegg though, nor am I in NY) I was really hoping to get more details around that. Looks like you’re right.

      In reality, I think Newegg will start getting a lot of affiliates that have PO Boxes in neighboring states where this law doesn’t exist and affiliates will keep at it.

  8. Skankingmike says:

    i know that, but i mean can’t we just you know move them to PA or something isn’t it expensive to be here? i still use them though even with tax it’s still cheaper.

  9. sleze69 says:

    Gotta love Newegg. Lack of sales tax is the reason that Delaware is just going to be one long strip mall in a few years.

  10. Ihaveasmartpuppy says:

    Use tax. Does that mean if I order something from out of state, receive it but never use it then I don’t have to pay the tax that I would have owed had I used it? What a stupid name for a tax.

  11. JasonR says:

    Use tax is nothing new. Its enforcement may be.

    [en.wikipedia.org]

  12. alangraham999 says:

    I think the perfect strategy for vendors is to put the onus on the states. If they want to bend the law like this…don’t collect the tax…make the state have to go after all the customers…the sheer manpower required to collect would likely suck down any taxes they would have made from this idiotic move in the first place.

  13. SigmundTheSeaMonster says:

    Maybe Newegg should store it’s customer salestax info on the hard drives they ship to us. (if you’ve bought Hard Drives from them, you’ll get it…shipped in bubblewrap…all popped by the time it arrives…oh I am sure that drive will be reliable…)

  14. dragonfire81 says:

    Most U.S. companies avoid paying taxes anyway, why should Newegg be any different.

  15. grandzu says:

    I don’t know when Amazon will get the brains or the guts to do the same thing. So far they’ve be unwilling to listen to their numerous, but shrinking, NY customers.

  16. CityGuySailing says:

    dragonfire81: Why this happens is really simple. All companies have to pay taxes on income after expenses. There is no getting around this. What companies do is to pay dividends to its shareholders, or salaries to its employees, or to invest in itself for research and development, or buy hardware, software, or any other of dozens/hundreds of different classifications of expenses. Sure, Verizon TAKES IN a bazillion dollars per year, but they SPEND that same bazillion (in salaries or buying things, or pensions or 401k or whatever) so that the effective amounts left in the bank (just as you balance your checkbook) at the end of the fiscal year is zero dollars.

  17. Starfury says:

    California has Use Tax; it’s for when you mail order items and CA sales tax (6.75%) isn’t collected. Assuming I ordered $100 of stuff from Amazon I’d have to pay $6.75 on my taxes to the state.

    I think NewEgg does have to charge CA tax because they’re located here; even with that they have great prices.

  18. mwshook says:

    Where I used to live (Alabama) there was a place on your income tax return to list items you purchased online or through catalogs to pay use tax. I would list and pay for purchases on items over $100, to keep the heat off.

    When I lived in Florida, they had no income tax, so no returns. You were supposed to submit use tax payments MONTHLY! I have to admit that I didn’t do this, and I never knew anyone who did.

    What scares me about use taxes, if you were ever audited, it would be trivial for the auditor to look up your credit card bills for online retailers and stick you for fraud. But in Flordia, I don’t know if anyone ever gets audited.

    (I’m going to be unpopular for saying this) But it’s within a state’s rights to collect tax on this stuff. It’s a lot more convenient to pay it at the time of sale rather than keep records and document it on the tax return.

    If you don’t like being charged use tax (and nobody does), take it up with your legislators. Or you can do like I did. I moved to Oregon! No sales tax, no use tax!

  19. muffingal says:

    @varro: That is what Jersey is to NY for clothing! Since I work in Jersey, I do most of my clothes shopping there. (I also have my Amazon orders sent to my job!)

  20. wcnghj says:

    @ Incognegro Interrupted

    Maine also.

  21. avoidance of Use tax is easy for the state to detect.

    I get audited by my State every 18 months and all my major out of state sales are recorded by the auditor. MY State is allowed to share with your State and does actively share the information with YOUR State.

    Is the State going to chase down a book with $0.90 in Use Tax or the $900 Use Tax owed on a new Rolex? Wave enough $ and the State will come running to fill their belly.

  22. Canoehead says:

    Amazon needs to copy this ASAP!

  23. monkeysattack says:

    For those who have said Amazon needs to copy Newegg, BS.

    Amazon is actually going to the root issue and is, along with other retailers, taking the state of New York to court. It sucks people are left in the interim; it does more to solve the long-term problem.

    More information:

    [www.nytimes.com]

  24. cyr3n says:

    reason #110 to use newegg.com for all your ‘ware needs!