There has been a considerable buzz in state-and-local tax circles recently about New York’s so-called “Amazon Tax.” What started as a policy contained in an informal Tax Department publication has been transformed into a new statutory nexus provision with the potential to replicate itself across the nation.
Tim Noonan writes: What happened? Frustrated with the inability to earn revenue from online sales to in-state residents,
New York devised a way in which to expand the potential obligation for out-of-state retailers to collect sales tax on their in-state transactions. The idea centered around notions of affiliate or agency nexus founded in the Supreme Court’s decision in Scripto, Inc. v. Carson, 362 U.S. 207 (U.S. 1960), where the court held that an independent contractor soliciting sales in Florida was sufficient to create sales tax nexus for out-of-state companies selling into the state.
New York has transported this idea from the 1960s to the present, and applied it to online retailers who use their own type brand of independent contractors to drum up sales on their websites.
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Thus, last year New York enacted a law creating a presumption that an out-of-state seller has nexus with New York if the following two conditions are met:
- The seller has an agreement with the New York state resident under which the resident receives a commission for directly or indirectly referring potential customers to the seller - whether by link on a website, handing out flyers, etc.; and
- The cumulative gross sales from these referrals exceed $10,000 in any particular year.
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When New York changed the law... Amazon and others immediately brought suit in New York seeking a declaration that
New York ’s law change was unconstitutional for a variety of different reasons (including intentionally targeting Amazon). Just recently, however, a
New York trial court rejected all of their claims and dismissed their lawsuit entirely. Amazon.com LLC v. New York State Dept. of Taxation & Fin., 2009 NY Slip Op 29007, 1 (N.Y. Sup. Ct. Jan. 12, 2009). Basically, the court looked to Supreme Court nexus jurisprudence, including Scripto, and decided that New York’s new nexus provisions did not run afoul of constitutional limitations on a state’s ability to impose a sales-tax collection obligation.
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Indeed, New York’s new law—and the litigation surrounding it—is of particular interest nationwide because, if upheld, it could serve as the framework for laws in many other states. Indeed, a few states have already proposed legislation patterned almost word for word with New York’s “Amazon Tax.” Minnesota and California are the most recent examples, although states like Connecticut, North Carolina, Hawaii, and Tennessee are also considering similar legislation.
HEAR TIM NOONAN'S DISCUSS THE "AMAZON TAX" IN A PODCAST INTERVIEW ON THIS SITE.