• by Wendy Davis  @wendyndavis, May 5, 2008

Amazon has filed a lawsuit asking a New York court to declare the state's new Internet tax unconstitutional.

The Web retailer argues that New York State can't tax it because Amazon has no physical presence in New York or significant ties with the state. "Amazon's only contact with New York residents is by mail, wire, or common carrier," the company argued in a lawsuit filed last month.

The bill, recently signed by Gov. David Paterson, requires Web retailers that use in-state affiliates to collect New York sales tax. The bill was largely seen as targeting Amazon.com, and was informally referred to "the Amazon tax."

The U.S. Supreme Court ruled in 1992 that states cannot require out-of-state retailers like catalog companies to collect sales tax unless they have a physical presence, like a brick-and-mortar store, in those states.

But the New York legislature relied on the theory that Amazon's in-state affiliates--including other Web publishers that garner referral fees because they have placed links to Amazon on their sites--constitute a sufficient presence in New York to justify taxing it. That rationale was first put forward last November by former Gov. Eliot Spitzer. The measure is expected to bring in $50 million to New York this year.

Amazon disputes the argument that members of its "Associates Program" are Amazon agents. "Associates Program advertisers do not solicit or consummate sales on behalf of Amazon," the company argued in its lawsuit. "The activities of advertisers that participate in the Associates Program are not significantly associated with Amazon's ability to generate revenue from selling products to customers in New York."

The company also said it has no way of knowing whether any affiliates actually are based in New York.

Amazon also asserts that the bill violates its right to equal protection because it appears to have been written with the goal of targeting the company.

When the state Assembly passed the bill, legal experts said that New York would likely face a difficult battle in court.