Amazon, Overstock Must Collect New York Sales Tax If They Have In-State Businesses, Court of Appeals Says
New York has the authority to require e-tailers to collect sales tax on purchases made by New York residents if those companies have associated businesses in the state, even if the e-tailers have no actual presence in the state, the New York Court of Appeals ruled Friday (http://bit.ly/13Ax7iy). The ruling from the state’s highest court comes as Congress considers the Marketplace Fairness Act and one week after the Senate voted for a budget amendment that would enable states to collect sales tax on online purchases made by residents from out-of-state online retailers (CD March 26 p7).
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The court noted that the U.S. Supreme Court would be the one to decide how relevant the physical presence standard is in the Internet age. “The world has changed drastically in the last two decades, and it may be that the physical presence test is outdated,” the ruling said, referring to the Supreme Court’s Quill decision in 1992. “An entity may now have a profound impact upon a foreign jurisdiction through its virtual projection via the Internet."
New York-based websites that direct traffic to Amazon and Overstock “are only media in which Overstock and Amazon advertise their products,” Judge Robert Smith said in his dissenting opinion. The in-state sites are not soliciting business as a local sales agent would do, he said. Links on those sites “serve essentially the same function as advertising that a more traditional out-of-state retailer might place in local newspapers. ... [The sites] encourage people to visit their websites, just as a newspaper owner would to boost circulation,” he said. If these in-state associated businesses are really just advertisers, the New York law is invalid under the Constitution’s Commerce Clause, he concluded.
Issues of interstate e-commerce sales tax like these could be handled by Congress passing the Marketplace Fairness Act, an Amazon spokesperson said in a statement. “The ruling by the New York Court of Appeals conflicts with both the U.S. Supreme Court’s precedents and with contrary decisions by other state courts that have looked at the same issue,” he said. “Given the confusion reflected by this decision, we believe the best way to effectively fix this problem is through passage of the Marketplace Fairness Act by Congress, which Amazon strongly supports."
"This ruling spells trouble for all those New York websites who will lose advertising dollars from out-of-state retailers,” Steve DelBianco, executive director of Netchoice, told us. Netchoice represents e-commerce companies including eBay -- which has opposed the Marketplace Fairness Act -- and Overstock. “The New York Court ignores the physical presence standard for state authority to impose taxes,” DelBianco continued. “But if Amazon and Overstock appeal this to the Supreme Court, they'll stand a much better chance of overturning based on the Constitution and the Quill ruling.”