The New York Appellate Division today reinstated a lawsuit by Amazon.com and Overstock.com challenging the constitutionality of New York’s sales tax on out-of-state internet vendors.
In 2008, New York passed a law that was, ostensibly, meant to protect in-state “brick and mortar” stores by imposing New York’s sales tax on out-of-state vendors such as Amazon.com, Overstock.com and other online vendors. Amazon and Overstock brought a suit challenging this law on the basis of a 1992 U.S. Supreme Court decision prohibiting state governments from forcing retailers to collect sales tax unless they have a physical presence in the state, like a brick-and-mortar store.
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In a decision issued last week, the New York Appellate Division ruled that whether the companies will be able to defeat the law depends on the nature of the affiliates. If they are “passive” advertisers, the law appears unconstitutional, but if the affiliates are engaged in “direct solicitation,” then the sites will have to pay the tax.
It should be noted that many online retailers, such as Newegg.com have pulled all instate affiliates from New York State in order to avoid paying the state sales tax.
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