With very little fanfare, a tax case in New York may shake up the online world as we know it. In April 2008, New York passed a new law targeting online sales and requiring that online retailers collect and remit sales tax to the state. Amazon.com balked at the new law and later filed suit against the state of New York, alleging violations of the Commerce Clause in the US Constitution and the Due Process and Equal Protection Clauses of the NY and US Constitutions.
This week, Amazon.com’s case was dismissed. Manhattan Supreme Court Justice Eileen Bransteen has ruled that Amazon.com did “not come close” to demonstrating that the law was unconstitutional.
Justice Bransten found that the new law was sufficiently in line with existing laws requiring retailers to have nexus, or a significant relationship, in the state before imposing sales tax. Amazon.com had argued that associate links were merely advertising. Justice Bransten found otherwise. With a tweak to out of state companies, she wrote: “The neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax-collection burden when using New Yorkers to earn profit from other New Yorkers.”
New York legislators must be breathing a sigh of relief. In an already stretched thin budget, the tax will add breathing room of about $50 million a year.
Amazon is considering an appeal, according to reports. In light of the strongly worded ruling, I’m guessing any appeal would only come after serious consideration.
What does it all mean? I think there will be two significant outcomes:
1, Online retailers will begin to rethink the way that they do business with affiliates – especially in a tough economic climate.
2, Other states will jump on the bandwagon. California, anyone?