May 8 – May 15, 2008 Edition

Amazon to Pay
New York Taxes,
Despite Lawsuit

SEATTLE, WA./5/2/2008– has filed suit against New York State, challenging the constitutionality of a new law which allows the state to collect taxes on sales made to New Yorkers. Despite the lawsuit, the company announcedMay 2 that it would begin collecting and paying the tax on June 2.

The company seeks a declaratory judgment against the statute, as applied to Amazon. The suit was filed April 25 in New York’s State Supreme Court against the Department of Taxation and Finance, Department Commissioner Robert L. Megna, new Governor David Paterson and the state as a whole, according to a report in Shelf Awareness.

Earlier in April, the Governor signed a new budget which included the tax statute.

Amazon charges that it has no physical presence in New York and has no in-state representatives soliciting sales, thus should not be required to collect sales tax.

Among key issues in the law is the requirement that that a person or company making sales, such as Amazon, “shall be presumed to be soliciting business through an independent contractor or other representatives if the seller enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller.”

Amazon counters that the statute violates the U.S. Constitution’s commerce clause and the due process clauses of the U.S. and New York Constitutions. Amazon also charges that the statute violates the equal protection clauses of the U.S. and New York Constitutions because “it intentionally targets Amazon.”

The case impacts members of Amazon’s Associates program, whom the company argues are merely “advertisers” on its site. Many are non-Internet out-of-state retailers who refer New York customers to buy books, through New York print and broadcast advertising. Amazon says it would be impossible to distinguish between Associates who might be residents of New York and those who aren’t. Thus, the law unfairly requires Amazon to collect and remit sales and use taxes on all its sales to New York residents.

Amazon cites certain requirements it says would be “impossible to met,” such as having to prove that any Associate who is a New York resident “did not engage in any solicitation in the state on behalf” of Amazon.