Saturday, May 31, 2008

"Amazon Tax" Begins Tomorrow; Goodbye to the Sales Tax-Free Internet?

On Sunday, June 1st, the so-called "Amazon Tax" goes into effect in New York state. While formerly only retailers with brick-and-mortar stores in a state were required to collect sales tax, New York has enacted a law which forces etailers to collect tax on sales, if they have affiliates which redirect traffic to their sites (e.g., affiliates).

Of course, hasn't let this go unchallenged, and has filed suit against New York, saying that the affiliates are independent and simply advertise for Additionally, indicates that the company can't always determine of its hundreds of thousands of affiliates are actually run by New Yorkers.

At the same time, has ceased operations with any New York affiliates to avoid the tax.

Although it's true that only four states to this point have required to collect sales tax (Washington - where its headquarters are located, Kentucky and Kansas -which have large distribution centers, and North Dakota - which has its customer relations operations), consumers in all states are supposed to pay any such sales tax on their state tax returns.

Many don't know this, and few pay it, if they do know.

Naturally, in this time of recession and budgetary crisis all around, states would love to get their hands on this extra revenue.

Will's legal challenge work? Well, in a 1992 Supreme Court decision, Quill vs. North Dakota, the Supreme Court ruled that out-of-state retailers cannot be required to collect sales tax on purchases sent to states where they did not have a physical presence.
The Supreme Court’s reasoning was at least partially based on the fact that, at the time the case was decided in 1992, there were over 6,000 separate sales and use tax jurisdictions in the United States (states, localities, special tax districts, etc.) and to impose a collection obligation on a remote seller would impose a crushing burden that would severely restrict interstate commerce.
Of course, there are now even more sales and use tax jurisdictions, but it would be hard to argue that could not handle such record-keeping. On the other hand, despite the fact that it's obvious which corporation this law targets, based on its nickname, which was coined by New York state legislators, this law would target all etailers doing more than $10,000 worth of business annually in the state.

That's a pretty small number, and those with that sort of income would have difficulty keeping up with all the tax codes around the country.

Still, you can bet other states are watching this closely, and will jump on the bandwagon if this is successful - and if it successfully overcomes any legal challeges.

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