In April of 2008, New York State (as well as several other states) passed a law that sought to compel out-of-state online retailers, such as Washington-based Amazon.com and Utah-based Overstock.com, to collect sales tax in connection with sales made to New York State residents. Normally, an out-of-state retailer would not be required to collect sales tax from such commercial activity unless it had a physical presence – such as a retail outlet or office – within New York State.
The New York State law (commonly referred to as an “Amazon tax,” “affiliate tax” or “Internet marketer tax” law) created a standard whereby an online retailer would be considered to have a presence (or “nexus”) in-state, and thus an obligation to collect and report sales tax, if even one of its affiliate marketers is based in New York State.
Amazon and Overstock almost immediately challenged the constitutionality of the affiliate tax law in New York, as well as in other states where similar laws were passed. While Amazon and Overstock enjoyed some success in overturning Amazon online affiliate tax laws in other state courts (Colorado and Illinois for example), yesterday, the New York State Court of Appeals upheld the New York law by a 4-1 vote. Amazon and Overstock are likely going to appeal the ruling to the United States Supreme Court.
The various legal challenges to, and ongoing evolution of, the various Internet marketer tax laws should be of interest to all affiliate marketing networks, online retailers, Internet marketing attorneys and those interested in Internet marketing law in general.
If you are interested in learning more about this topic or need to review your affiliate marketing or e-commerce practices, please e-mail us at email@example.com, or call us at (212) 246-0900.