Commentary

Supreme Court Could Rule On NY's 'Amazon Tax'

Earlier this year, New York's highest court upheld the state's “Amazon tax,” a law that requires some out-of-state ecommerce sites to collect sales tax.

The law, passed in 2008, applies to retailer sites that use in-state affiliates -- including online publishers that garner commissions when visitors make purchases after clicking on ads. Amazon and Overstock challenged the law as unconstitutional on the ground that the Supreme Court said years ago that states can't require companies to collect sales tax unless they have a “substantial nexus” to the state, like brick-and-mortar stores.

But a divided N.Y. Court of Appeals disagreed in a 4-1 ruling. The majority opinion held that companies like Amazon and Overstock -- which pay referral fees to in-state Web publishers --  have significant ties to the state. When the decision came out in March, Santa Clara University law professor Eric Goldman told MediaPost that the ruling could have far-reaching implications. “This opinion greenlights states to treat affiliates as traveling salespeople,” he said.

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Amazon has long since dropped its opposition to the idea of tax collection -- possibly because the company is opening warehouses throughout the country in order to make faster deliveries.

But the company, and Overstock, are still fighting the New York law. In their latest move, they filed papers asking the Supreme Court to hear the case. Amazon and Overstock argue in their petition that New York's law is unconstitutional because it “will significantly and unduly burden interstate commerce.” The companies add that New York's Amazon tax  “provides a road map for other jurisdictions to inflict similar burdens on interstate commerce.”

Amazon and Overstock add that if other states follow New York's lead, the result will be a chaotic system in which all Internet retailers have to collect taxes in every state as well as thousands of localities.

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