Posts by Ed Kountz from May 07, 2008

Ed Kountz | May 07, 2008, 09:21 AM
Amazon vs. NY State: Online Sales Tax and the Consumer Perspective

Amazon.com’s decision to file suit against the state of New York regarding that state’s newly-amended sales tax law brings the issue of sales tax collection and e-commerce back into spotlight.

Amazon’s complaint was filed against NY Gov. David Paterson, the state’s Dept. of Taxation and state tax commissioner Robert Megna, following the state’s decision to amend its tax laws in some interesting ways.

Traditionally, of course, Amazon and other e-tailers haven’t been subject to collecting state sales taxes on sales to state residents unless they had physical presence, such as a warehouse, in the state.

The NY changes amend the definition of “physical presence,” to include any e-tailer which does $10K or more in in-state sales through affiliated sites based in New York, beginning June 1. “Affiliate” websites—such as Amazon’s Associates Program—would be included under the new definition, and would necessitate the firm (and others) to collect sales tax on everything sold in the state.

click here

Amazon’s complaint asserts that it does not have any in-state representatives “soliciting on its behalf,” and is seeking to have the ruling declared invalid.

This is less a payments issue than a taxation and legal one, of course. Yet it is worth noting in light of recent JR survey data, which shows that more than a quarter of all online users indicate that one reason they shop online is because of their ability to avoid paying sales tax on those purchases.

Of course, those numbers also suggest that most consumers DON'T factor in sales tax advantages in their decision to shop online...given other issues like traffic, cost of gas, etc, the time and convenience advantages of purchasing books or CDs online, for delivery, are clear. But the number who seek the sales tax advantage is large enough to give cash-strapped states renewed interest in revisiting the topic.

This battle is still in its early stages, but if the state prevails look for potential beneficiaries among e-tailers who can prove they do not have a “physical presence” in the state, and who market to this sub-segment of the market accordingly. Of course, look also for attempts to restructure the “affiliate” agreements in compliance … and many more updates in the interim.