Remember the Amazon Tax? Back in April, the New York State legislature passed a bill requiring Amazon to collect taxes from New York State residents even though it doesn’t have a physical presence in the state (the normal requirement for retailers). The state got around the physical presence requirement by counting affiliates as part of Amazon. Amazon (and Overstock) filed lawsuits seeking summary judgment against the State of the New York. Yesterday, a New York State judge dismissed those lawsuits, potentially throwing the case into the Court of Appeals.
The question, though, is not whether Amazon should collect New York State taxes. It would be trivial for Amazon to do so during the checkout process for residents of New York. (Update: In fact, it’s been doing so since the law was passed last summer). The real issue is the way the law gets Amazon to do so by dragging its affiliates into it. As I wrote before, this sets a bad precedent:
The law, as written, is just a bad law. And it would set a dangerous precedent. Not because New York State shouldn’t try to collect the $50 million in estimated uncollected sales taxes owed to it. But because the law is tortuous in the way it attempts to do that.
A marketing affiliate is not part of Amazon. If I put some Amazon book recommendations on the side of TechCrunch , set up an affiliate account, and readers click through and buy those books, that does not make TechCrunch part of Amazon. It is a marketing arrangement. Just like someone who sets up an AdSense account does not work for Google.
You can expect more states to try similar ways to tax online retailers as their overall budgets shrink. And you can also expect affiliate marketing programs that have served to grease the wheels of e-commerce become more restrictive. For instance, one solution for Amazon would simply be to cut off affiliate partners just before they hit $10,000 in sales, the minimum threshold stipulated in the New York law. But you see where this will lead—to less overall e-commerce sales and a drop in the massive New York State budget.
“It would be trivial for Amazon to do so during the checkout process for residents of New York.”
You make it sound like Amazon isn’t already charging tax on NY State orders. They are, and have been for a few months now.
I live about 5 minutes from the PA border, and I’m seriously considering grabbing a P.O. Box across the border to avoid the sales tax issues.
You might still get charged with the tax, as your billing address (which often needs to match your credit card billing address) is presumably in New York State. Does the law apply to orders billed to or shipped to New York State?
I was wondering the exact same thing. Is it based on billing or shipping? Most articles say “Items shipped to NY,” but afilliates accept a payment from Amazon, so their billing address is probably key. So, open a bank account in PA!
I was really wondering about the consumer – if I use my NY credit card but have my items shipped to Maine, then do I not pay taxes because the items were shipped to Maine?
It is the shipping address as far as I’m aware.
Hypothetically…one could, for instance (not that I’ve tried… ;] ) avoid NY taxes when out of school by shipping items to one’s university address in a tax-free state, which then be forwarded them to them in NY. This would work with a billing address in NY. May have an extra day to wait, though.
This works with universities that forward mail so I’m sure if you can hop over the state line to get your package it would work!
Would you seriously do that to avoid taxes?
Amazon started collecting taxes back then because they had to – due to this (in ref to Shaun)
Don’t think this is the end of this. I see this eventually becoming a trend for numerous states as they lose more and more sales tax revenue to online merchants.
Sales tax online is ridiculous. We pay way too many taxes as it is.
What happened to the days when people would battle over tea taxes? Remember those stories? Any new tax would drive citizens mad. Look at this now. We have tax after tax laid on top of us. When will this end, and when will people fight back? What happened to the American anti-tax attitude?
I appreciate your enthusiasm but the causes of the Boston Tea Party you are referring to were not as simple as people getting fed up by taxes.
It was in large part who they were paying the taxes too, namely the British , and most importantly because the British passed a law stating that tea could only be purchased from Britain (which taxed the hell out of it) and the new American colonies were prohibited from buying cheap tea imported by the Dutch.
But of course, your explanation makes your point sound smarter, and what would I know about U.S. history, I’m just a heavily taxed Canadian.
As a Brit living in the US, I find the parallels amusing that I can’t buy Cuban cigars.
@Div,
The colonies were British colonies at the time so what is so strange about this? And the policy of not allowing tea to be bought from the Dutch would today be called protectionism… A policy I am guessing you are all for.
Ironically, the end result of higher taxes is less tax revenue. But we’re in a bail-me-out world now.
You’re forgetting to mention that the colonists were mainly upset about being taxed in such manners without having fair representation in the British Parliament. This is the most important fact!
Regardless, Amazon being tax free is so refreshing in the nation we live in now. Can’t the government give citizens one inch? They take our money in the name of taxes and waste it or use it for their own personal agenda. Sure we have “representation” but it’s all just a facade.
One day the people are going to say enough is enough.
I would expect the logical response of Amazon.com (once they exhaust all appeals to higher courts) would be to ban New York affiliates. New York affiliates could then incorporate in other states, to be back in business with Amazon.
By Newtons’ Third Law (applied to taxes), for every action, there is an equal and opposite reaction.
If they win this one than it will be applied to all states. All states have affiliates. This is BS.
Did you just quote yourself?
I don’t want to have to collect sales tax any more than anyone does on online purchases, but the “nexus requirement” as it’s called in tax law, is more complex than simply “being a part” of amazon. Companies that have a connection to states that rise to a certain level are obligated to collect tax there. Affiliates is a pretty interesting theory, actually, since they are someplace on a continuum that would include franchisees. It’s not black and white, it’s grey, but it’s not a preposterous theory. The distinction is one of degree, not character….
Your confusing the issues here. The “nexus requirement” as the Court articulated in International Shoe, applies to jurisdictional issues, i.e. whether a state can exercise jurisdiction over a company who has no presence in the state. There is no question that New York courts have jurisdiction to hear this case because Amazon purposefully avails itself of doing business in New York, it has more than “minimum contacts”.
The question is a Commerce Clause issue — whether New York is imposing an undue burden on interstate commerce by collecting a sales tax on New York residents. This requires more than the jurisdictional “nexus” or “purposeful availment”, at least according the 1992 decision Quill Corp. vs. North Dakota, which called for the bright line rule of physical presence to be applied.
You have misinterpreted the relevant constitutional law. Your commenter is correct about the nexus requirement. The question of “nexus” for due process, and “nexus” for the purposes of the dormant Commerce Clause are separate questions–and different legal analyses. There is the required “substantial” nexus under the new New York law because, in order to be taxed, an online retailer must have a constitutional nexus with New York, no more or less. That’s what the statute at issue says.
Just remember: legal questions (is this law permissible?) and policy questions (is this law a good idea)? are different things.
The court held the law is permissible constitutionally. As an attorney who practices in this area, I believe that its analysis was correct. Please don’t flame me.
Another fine example of our clueless NYS legislature at work. What did the Brennan report say, that they never spend any amount of time figuring out much anything costs?
TERM LIMITS MOTHERF#(*$%(ERS!
Reminds me of how states are also starting to think about how to tax hybrids more. Since they use less gas, they don’t contribute as much that way, yet they put the same wear and tear on the roads or require the same wear and tear (as in snow plowing, painting lines, etc.) as other cars.
States are always trying to figure out how to get more money, even when they have to do something tricky like this.
As an upstate NY resident, this drives me up the wall. Many affiliate programs have pulled out of NY state because of this nonsense.
To put it in context, NY has a long history of passing laws that restrict commerce for the benefit of incumbent businesses and established interests.
Amazon isn’t the loser here. The real loser in the sales tax war will be small internet businesses. I worked for a company that developed web sites for wineries, particularly in the finger lakes region. Although the business is highly regulated, it actually works OK, since the deliveryman checks the ID of the person who signs for the package. Well, we had to keep track of NY sales tax, which was quite a pain because it was different in each county. The amount of programming it took just to keep track of NY law, never mind all the other states, and all the paperwork was crazy.
I suppose that there will be some Tom Golisano who becomes a billionaire for building a service that takes care of the paperwork… For a price. And that’s what the NY government wants, since it works for Wall Street.
This definitely hurts rural people more than urban/ suburban people. There are lots of small business affiliates in the middle of nowhere who were actually making a decent living online.
This hurts those affiliates who can no longer sell their goods (in the case of Amazon or Ebay). but it also does not help those communities if they didn’t have any “bricks and mortar” stores like that near them to begin with.
Yeah, the B&N around the corner from me might benefit, but if I happen to live up in North Country that was deliberately bankrupted by the state’s anti-small dairy farm programs of the last century, then I lose out all around.
I believe since more people are shopping online and Amazon and other sites are becoming online department stores every state should start collecting sales taxes for the residents of the States. In this economic downturn every State should look into getting more tax revenue. The real killing is done by UPS and FedEx in shipping charges. They keep raising their charges for fuel adjustments but never brings their price down when the fuel becomes cheaper.
I believe the tax free ecommerce holiday period is over and as death taxes are a certain fact now.
Why? So they can waste it? Get rid of sales tax, get rid of income tax, trim government bureaucracy and watch the nation prosper.
Ahh Man.. Amazon is like Ray Liotta from Good Fellas.. Stop pointing FingerS!!
Here’s an opportunity – set up a corp in Newark, NJ or somewhere upstate, PA, provide new-yorkers with link to virtual P.O. Box, forward the packages to their address (or deliver them yourself) for 40 – 70% of the amount someone would have had to pay in tax.
Alternatively, set up a shipping company in PA/NJ/DE that would accept shipments for NY residents. So technically, Amazon/Newegg would sell and ship to NJ/PA/DE and not NY.
Great opportunity… to go to jail. Believe it or not, tax fraud is still a crime. If you’re business had any amount of success at all, you’d be shut down before you even got TechCrunch’ed.
Why? This is actually a brilliant idea. Whay about those UPS Stores? UPS bought out Mailboxes Etc – a place where anyone could buy a PO Box. I’m assuming UPS Stores still do that. But, they also do deliveries from there.
So, what if I go to a UPS Store in NJ and open a PO Box and tell them to deliver all packages to me in NY.
How can that be illegal? Amazon ships the package to NJ. Then a Third Party, contracted by me, signs for the package and then hands it back to be sent from NJ to me in NY.
This can’t possibly be illegal for two reasons: First, if I actually have a home in NJ as well as NY, then I have every right to have my items shipped to my NJ address. I can then ship that package to my other house in NY. Why not? It would be no different than driving the package betwenn the two homes myself (just a lot better for the environment).
Second, corporations move their “business” addresses to tax-friendly states all the time. Like Citicorp and Chase – their headquarters are in NYC, but all their business transactions go through Delaware or South Dakota.
The City Group building is in NYC, but my credit card and student loan payments go to South Dakota.
My house on Long Island would be my “headquarters” and my PO Box in NJ would be my “Bill To” address. Actually, under this third-party middleman system the PO Box could be in any favorable state. Most likely there will be only a few tax-friendly states left (like Delaware and SD are for the banks) and those few states will THRIVE!
So who is going to pay for this extra shipping company?
A retail store is also “just a marketing arrangement” they provide the foot traffic so that products can be sold.
I say time to start collecting full state sales taxes from all on-line retailers.
How about collecting sales tax from no one? That would stimulate much more growth.
I live in WA. So are they gonna cut me of once I reach $10000 mark? come on ><
Amazing how no one holds these politicians accountable. There’s one political party in the US who has built its entire platform around spending. See where it gets them. California, New York, WA state. All states with massive deficits due to democrats spending like idiots.
Welcome to the next decade. No one is willing to cut their precious government programs, so they’ll find ways to tax us with a million papercuts.
Hopefully some of the more fairminded democrats will see whats going on and vote the bums out.
Seems like the only equitable way to do that would be a federal tax on all online sales thats redistributed to the states?
Right…. as if the federal government would be able to handle doing that.
Only a matter of time before they would be spending that money themselves.
Then they’d offer an additional tax to try and make up for the money the states are missing out on by their spending.
Just more steps in our journey to Socialism.
Wow. How about creating wealth instead of just redistributing it? Why do so many people believe that only a total “pie” of wealth wealth exists, and it can only be cut into slices and re portioned?
Hello. What about the notion of creating a bigger pie??? I think TechCrunch readers on the whole understand the notion of creating a bigger pie. Have we not read chapter 7 of Hackers and Painters yet? If your product or service does not create wealth where none existed before, then you’re just a stock broker or a government agency.
Amazon has created wealth here. And those who do not create wealth are the first ones to try and put their designs on it.
Some states get smart about attracting online businesses, some go stop-gap to stem the losses.
Maybe a large number of online retailers can just stop selling their products to NY residents. That would cause the people of that state to put pressure on their government to back off. I live in a state where there is no sales tax and it is amazing to see all states that have sales tax constantly raising it or saying they are going to raise it temporarily and then never reduce it.
Small government is good.
I agree. It’s unbelievably refreshing when shopping in Oregon to actually pay the what is listed on the pricetag when buying something.
Every state that has an initiative process should have get a no sales tax law voted on in the next election.
Yea, too bad Oregon then turns around and taxes the crap out of all income on those who are trying to make a living selling those “tax free” items. So prices of the items simply go up instead.
If you look a little deeper, it’s not about Oregon trying to be a refreshing alternative, but rather a progressive tax philosophy designed to penalize those who run productive businesses.
New York means it when it calls itself the Empire State. The government believes that the citizens are there to serve it, not the other way around. There is nothing it won’t tax or regulate. And, how is that working out? Businesses & People are leaving like crazy, esp from upstate. Property values are dropping. The state is losing electoral votes as well as members of the house. And, it’s having a hell of a time balancing it’s budget.
I am one of those who left and I can’t see myself returning unless NY reverses course.
Amazon must when this case and companies like Google and Ebay should help them when it. If this tax law stands it could change the face of the internet. I don’t won’t companies like the one I owe ( http://www.bidmycleaning.com ) having to pay taxes in states we don’t have an office in.
If you owe that company, perhaps you should settle your debts with it.
This bloke (New York State legislature) tells this other bloke (Amazon) to hand over some money, even though the rules say he doesn’t have to. So to get round the rules, the first bloke dreams up a new rule. The second bloke appeals, but the guy he appeals to (New York State judge) is a mate of the first bloke and dismissed the appeal. Now there’s a surprise.
I feel like people are missing a huge reason to force Amazon to pay sales tax: fair competition. Local merchants are basically starting at a government-protected pricing disadvantage.
Not missing the point at all.. No sales tax (burden) anywhere is a better option. Fire all of the “Pamper the People” freaks from the government, problem solved. I am tired of these politicians and government staffers bending over backwards to wipe every citizen and non-citizens butt, just to get re-elected and wipe more butts.
Get back to basics, roads, infrastructure, protecting the country etc.! Let the basics pay for themselves, tax only when a necessity.
Amazon has this new website
http://amazonbe...t.blogspot.com/
where you can find pretty good deals, on a more fun way, than surfing thru amazon itself…. however if you get lost, or if you really really like amazon they still allow you to search from there
Wow, that is unfortunate for those in New York and Amazon itself. I would agree too that sales tax is generally horrendously complicated when I worked with some people on back-end tax related operations for another e-commerce site.
On the note about Amazon, I recently came across an interesting table that details the discounts on Amazon at http://www.uberi.com
Maybe that will help some others.
In Europe Sales Tax (called VAT) varies from 15% UK, 19% Germany to about 25%. In my opinion, the main reason sales tax in the USA peaks at about 8% is fear of tax free interstate commerce.
If they States can remove that fear, then look forward to European levels of sales tax you can’t avoid. Then, with all this extra money, you will see huge increases in salaries and pensions for state employees, more wasteful regulations and state interference that destroy private sector jobs.