New York Court Sends "Amazon Tax" Case Back for More Information

Earlier in the week a New York court handed down its decision in the state's case against Amazon.com. New York requires businesses without property in the state to collect taxes if they receive revenue from affiliates located in the state. Essentially the court is asking for more information and did not strike down the law or dismiss challenges against it.

The Tax Foundation reports

In Quill Corp. v. North Dakota and other cases, the U.S. Supreme Court has held that states can tax interstate commerce only if the target company has a "nexus" with the state - property or employees in the state. Otherwise, the Court has held, there is a serious threat to interstate commerce as states try to impose thousands of sales taxes, each with different rules.

The New York court's opinion was 13 months in coming, and it neither dismisses all challenges against the statute as the trial judge had, nor does it strike the statute down as unconstitutional. Indeed, the specific ruling by the majority is to send the case back to the trial court to further develop the record. The majority says the key unresolved question is how significant the affiliates are for Amazon's operations in New York and whether they actively solicit.

Amazon argued that affiliate referrals represent just 1.5% of their sales in the state. The court acknowledges this but says they need more information to determine significance. In a footnote, they suggest that a high dollar figure could be significant regardless of proportion. This is a mistake - significance to operations should be a judgment based on the proportion of the whole operation, not just a dollar threshold.

The Court rightly emphasizes that advertising does not create nexus. However, the opinion ominously notes that the challenged law would be valid if "a New York representative uses some form of proactive solicitation which results in a sale by Amazon, and a commission to the representative; and the representative has an in-state presence sufficient to satisfy the substantial nexus test." What they forget is the significance to operations test, which they emphasize elsewhere. Solicitation plus sales creates nexus for the affiliates, but it shouldn't create nexus for Amazon.

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New York Wins Case Against Amazon.com

Last year, Amazon.com sued the state of New York because of a new law requiring out of state businesses to collect sales tax. However, the state’s court recently ruled in favor of New York. Check out the article below from the Associated Press.

New York state won a round in court against Amazon.com over a new law requiring out-of-state online companies to collect sales tax from shoppers in New York.

The law applies to companies that don't have offices in New York, but have at least one person in the state who works as an online agent — someone who links to a Web site and receives commissions for related sales.

A state Supreme Court justice in Manhattan ruled the suit should be dismissed, saying Amazon had no basis for legal action.

Patty Smith, an Amazon spokeswoman, declined comment. The company sued last year, challenging the constitutionality of the legislation. It could still appeal.

The suit argued the change unfairly targets Amazon, is overly broad and vague, and violates the commerce clause of the constitution because it imposes tax-collection obligations on out-of-state entities.

New York state argued that the law closes a "tax loophole."

Businesses with a physical presence in New York already collect the state sales tax on online purchases. The proposed law would apply to companies that have $10,000 or more in New York sales.

Officials estimated the state would gain nearly $50 million in the next two years from the tax. New Yorkers, like residents of many states, are currently on an honor system to report their online spending when they file state tax returns.

Booksellers in New York have long protested the lack of a sales tax on companies like Amazon.

"The state of New York was subsidizing sales on Amazon to the degree of 8 percent," said Oren Teicher, chief operating officer of the American Booksellers Association. "That was unfair. The government ought not ever be in the business of picking favorites among competing businesses."