In New York, as in most states, when you make a purchase online from an out of state vendor, you are supposed to pay sales tax on those products directly to your state, assuming you took delivery of the items in your state. Of course nobody does this – I doubt most people even know you are required to. It’s also nearly impossible to enforce since companies do not have to collect sales tax for states in which they do not have a physical presence.
Until now…
According to this article, Amazon has lost a lawsuit which requires them to collect sales tax on purchases shipped to New York. The state of New York realized that Amazon ships tons of merchandise to New York and the state is not getting any sales tax on it. Since they know it would be impossible to enforce existing tax law and go after each purchaser, they decided to go after the source – in this case Amazon, which is an out of state company.
How did the state of New York justify collecting sales tax from an out of state company? They claim that Amazon affiliates in New York constitute the state conducting business in the state. An affiliate is a person who creates a link on their website to Amazon for products that Amazon sells. When a customer clicks on the affiliate link and buys from Amazon, the affiliate gets a small commission. So, New York reasons that these affiliates are agents located in the state of New York and thus constitute Amazon’s “physical” presence in the state.
New York based businesses, especially bookstores, seem to be happy about this because now New York customers of Amazon will have to pay the same sales tax as if they bought from a local store. I know that many people buy from Amazon because they do not have to pay sales tax (even if they are required to by state law).
Apparently the state of New York stands to collect 50 MILLION dollars in sales tax over the next 2 years from sales made through Amazon.
I suppose Amazon is probably weighing whether or not their affiliate programs are worth the effort.
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