New York and online purchases


The state of New York has decided that there's money to be made off this thing called the internet. Their going to start charging sales tax for online purchases. While consumers were supposed to report this on their taxes (yeah, like people are going to keep up with that), this law passes it onto the retailer. Its unclear yet (until the Gov. signs it) what affect this could fully have, but clearly Amazon will be impacted. Here's the story for more details. And here's last week's report.


The proposed law is simply nonsese. You can't simply say there is nexus three times while facing Albany and magically make it so.

Vendor Presumption (Part OO-1). The legislation would create a presumption that a person making taxable sales of tangible personal property or services is a vendor if the seller enters an agreement with a resident of the state under which the resident, for a commission, refers potential customers by a link on a web site or otherwise to the seller, if the cumulative gross receipts from such sales are more than $10,000 during the preceding four calendar quarters. The presumption would be rebuttable by proof that the resident did not engage in, on behalf of the seller, solicitation that would satisfy U.S. constitutional nexus standards. The legislation would provide an amnesty for certain businesses that register as vendors and begin collecting sales tax by June 1, 2008.

These provisions would take effect immediately and would apply to sales made, uses occurring, and services rendered on the date the bill becomes law, without regard to the date of the agreement between the seller and resident.

Either the referrals from NY residents will cease, which seems easy enough; or the vendors will sue. It is well established by the Quill decison (Quill Corp v. Heitkamp [North Dakota] 504 U.S. 298) that if you have no employees and no office building in a state you don't have to collect sales tax there - well, that is a bit simplistic but you get the gist. (See also Complete Auto Transit v Brady [Mississippi] 430 U.S. 274 for the four part test to determine sales tax collection on out of state businesses.)

The legislators in NY may think it will fly, but I think the Commerce Clause might just be a problem for them. I don't see a federal Court letting this one through.