New York Court of Appeals Upholds “Amazon” Law

By Eileen Reichenberg Sherr, CPA, M. Tax.

New York’s highest court has confirmed that New York residents have to pay sales tax on internet sales where the vendor’s only contact with the state is through in-state affiliates. On March 28, 2013, the New York Court of Appeals upheld the state’s “Amazon” law against Commerce Clause and Due Process constitutional challenges made by Amazon and (, Inc. v. New York Dep’t of Tax. and Fin., No. 33 (N.Y. 3/28/13)). The New York Amazon law (N.Y. Tax Law §1101(b)(8)(vi)), enacted in 2008, imposes nexus on (i.e., requires sales and use tax collection by) remote online retailers based on the activities of in-state “affiliates” (i.e., a vendor that pays in-state residents to actively solicit business in the state).

For purposes of analyzing the Commerce Clause argument, the Court of Appeals noted the physical presence standard from Quill Corp. v. North Dakota, 504 U.S. 298 (1992), is still applicable even though “[t]he world has changed dramatically in the last two decades” (slip op. at 8). But the court said that changing that standard to account for the emergence of the internet “would be something for the United States Supreme Court to consider” (id.).

The Court of Appeals determined that the physical presence standard is satisfied if economic activities are performed in the state by the seller’s employees or on its behalf. The court held that the activities of the affiliates met this test, meaning the plaintiffs had substantial nexus with the state, and therefore the tax did not impose an undue burden on interstate commerce, satisfying the Commerce Clause. The court also determined that for purposes of the Due Process Clause, the plaintiffs purposefully directed their activities toward New York, and it was reasonable to require the plaintiffs to collect taxes for New York.

In several other states, Amazon has negotiated deals temporarily deferring its duty to collect sales taxes in exchange for in-state facilities. Currently, Congress is considering the Marketplace Fairness Act of 2013 (S. 336, H.R. 684), which would authorize states that simplified their sales tax systems and have remote seller laws to require online retailers of more than $1 million in remote sales to collect sales or use tax. The AICPA State and Local Tax Technical Resource Panel continues to monitor this issue.

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