Saturday, May 3, 2008

Amazon Sues Over State Law on Collection of Sales Tax

Amazon.com has filed a lawsuit challenging New York State’s new law forcing online retailers to collect sales tax on shipments to state residents.

On Friday, Amazon filed a complaint in State Supreme Court in Manhattan objecting to the law, which was approved as part of the $122 billion state budget that Gov. David A. Paterson signed last week. The law is expected to raise about $50 million.

The issue is not whether people should pay tax when they buy goods from out-of-state sellers like Amazon. For decades, the state has required them to pay sales or use tax.

The question is whether the vendors must collect that tax on behalf of the state. Generally, only those companies that have a physical presence — like an office or store — in the state where the purchase is made are required to collect the tax.

The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates — from big publishers to tiny blogs — that feature links to its products. The state law says that thousands of those have given an address in New York State, although the addresses have not been verified.

The law says that if even one of those affiliates is in New York State, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate. This is an extension of an existing rule that companies employing independent agents or representatives to solicit business must collect taxes for the state.

Amazon’s suit challenges the constitutionality of this interpretation and seeks a declaratory judgment that it is invalid.

The company’s complaint argues that the statute is “overly broad and vague.” It is impossible, Amazon wrote, for it to determine which of its affiliates are actually in New York State.

Amazon says that its affiliates are not agents, but simply sites on which it places advertising. The commissions it pays the sites are simply one method of paying for those ads, it argues.

And it further claims that the new rules violate the equal-protection clause of the Constitution because they specifically took aim at Amazon. “It was carefully crafted to increase state tax revenues by forcing Amazon to collect sales and use taxes,” the complaint says, noting that “state officials have described the statute as the ‘Amazon Tax.’ ”

Tom Bergin, a spokesman for the New York State Department of Taxation, said that the department would not comment on the suit until it filed a formal reply with the court. The state’s defense will be coordinated by the attorney general’s office.

Original here

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