Amazon.com takes New York Tax to Court

Amazon recently filed papers with the New York State Supreme Court declaring a problem tax provision to be "invalid, illegal, and unconstitutional." This was an expected response by a retailer attempting to redefine what constitutes the physical presence of a company within the geographical boundaries of a state.

Confused? So is the state of New York, which contends that Amazon ought to be held responsible for the collection of local sales taxes because the company pays out referral commissions to its affiliates who are registered to a New York address. The provision is part of New York's $122 billion fiscal budget for the year signed by Governor David Paterson earlier this week. (Source: news.com)

A significant part of the company's sales are generated by its business partnerships with hundreds of thousands of independent affiliates spread across the U.S. and the world. These provide links to products sold on Amazon's website for which the affiliates are provided a commission. Thus, despite the lack of a brick-and-mortar store, warehouse, or even a sales team, the state contends that this 'affiliate program' demonstrates that the online retailer has a physical presence in New York. Amazon strongly contests this categorization of its business, labeling the statute as being "overly broad and vague." (Source: nysun.com)

The company has hired the legal counsel of former deputy mayor Randy Mastro, who is expected to argue amongst other things that the state is overstating the physical presence of the company, and that barring this physical presence an out-of-state retailer such as Amazon should not be held responsible for the collection of taxes on behalf of the state. (Source: nysun.com)

Additionally, the company argues the new law to be in violation of the equal-protection clause of New York State's constitution, stating that "state officials have described the statute as the 'Amazon Tax.'" (Source: computerworld.com)

Craig Berman, an Amazon spokesperson, has said that the company is slated to begin collecting taxes from it customers on behalf of the state by June 1. The combination of state and city sales taxes attribute to an 8% hike for all New York residents who purchase products off Amazon. (Source: nysun.com)

New York's attempt to shift the burden of collecting taxes to out-of-state retailers is a consequence of the failure of the 'use tax', which puts the onus on individuals to declare the total value of their purchases from out-of-state retailers in their income tax filings.