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Amazon: State Law Too Taxing
May 1, 2008

Amazon.com is suing New York State for a new law which requires the online merchant to collect New York State sales tax. 

A Supreme Court decision says states can't collect sales tax unless the store has a physical presence in the state. New York claims Amazon’s affiliate program is enough, because some of the affiliates are in-state. But the e-tailer argues that it has no physical presence in New York and no in-state representatives soliciting sales. According to book trade e-newsletter Shelf Awareness, Amazon classifies its affiliates program as “advertisers” because they post ads and are compensated for them (confusing terminology for those of us in the magazine biz, who use “advertisers” to mean the folks who do the compensating).

The company claims the statute would impose the burden of collecting New York sales tax on out-of-state retailers who advertise on New York-based TV and radio stations. It also argues that that statute is unfair because it requires Amazon to collect sales tax on all sales to New York State residents, not just those made through New York-based affiliates.

Win or lose, this case is going to have big implications for online retail, and whether requiring merchants to charge state tax feels like correcting an unfairness or creating one largely depends on where you stand. For independent bricks and clicks retailers, it feels like leveling the playing field, but for pure play online merchants it can create a tangle of different state laws that are tricky to comply with. For cash-strapped states, it is potentially a windfall; for cash-strapped consumers, who in theory are supposed to pay the taxes themselves but often don’t realize it, it is likely to be resented, especially when the high cost of gas is pushing shipping charges for online purchases up as well.

And for Web-based retailers contemplating new forms of innovative online promotion, it’s adds a level of anxiety not to know what legal implications they’re letting themselves in for. By the time the case winds its way to a final outcome, affiliate programs may be obsolete and we’ll have to start all over again litigating the next big thing. — Meredith Schwartz

Posted by Virtual Merchant Today on May 1, 2008 | Comments (0)