Before the ink on the bill has even dried, Amazon.com has filed a suit challenging New York State’s new law that forces online retailers to collect sales taxes on shipments to state residents.
On Friday, Amazon filed a complaint in New York Supreme Court in New York City, objecting to the law. The provision is meant to contribute about $50 million to the $122 billion budget that was passed by the state legislature April 9 and signed by Gov. David A. Paterson last week.
The issue isn’t whether people should pay taxes when they buy goods from out-of-state sellers like Amazon, which is based in Seattle. For decades, New York and other states have required their residents to pay use tax — equivalent to sales tax — on out-of-state purchases for which sales tax wasn’t collected.
The question is whether the vendors must collect those taxes on behalf of the state. Generally, only those companies that have a physical presence, like an office or store, in the state of the purchase are required to collect the taxes.
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. It says thousands of those have given an address in New York State, although it does not verify the addresses.
The state law says that if even one of those affiliates is in New York, 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 that employ independent agents or representatives to solicit business must collect sales taxes for the state.
Amazon’s suit challenges the constitutionality of this interpretation and seeks a declaratory judgment that it is invalid. (Wired magazine posted a copy of the complaint here.)
Amazon’s complaint argues that the statue 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 argued.
The online retailer further asserted that the new rules violated the equal protection clause of the constitution because it specifically targeted 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 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 New York attorney general’s office.
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