Amazon calls New York’s new tax policy, “invalid, illegal and unconstitutional”

Posted May 4, 2008 at 10:57 AM by Arnold Zafra

Section: News, Web, Websites

Amazon has filed a lawsuit against the implementation of a new tax policy that would require online stores to collect sales taxes from their affiliates who embed advertising links on their site to drive more sales for retailers. Amazon calls the new tax policy, which was enacted a couple of weeks ago, as “invalid, illegal and unconstitutional,” as it dictates that retailers who would earn at least $10,000 of annual from affiliates in New York must collect sales taxes from those sales to be paid to the New York government.

The new Tax Policy has been receiving mixed reactions even from those not directly involved with the issue. Traditional retailers for one, have welcomed the new tax policy and believe that it would benefit them as it will eliminate the competitive advantage that online retailers have over them. Some critics on the other hand argue that this new policy would be an added burden to online retailers and their affiliates. Tax experts meanwhile, were not surprised with the new tax policy but they were afraid that should the law get upheld, this might establish a precedent which may be followed by other states.

In its new filing, Amazon cited a 1992 precedent U.S. Supreme Court Ruling on Quill v North Dakota, where the court upholds that a retailer must have “physical presence” within the state to be responsible for paying taxes. Citing the Quill case, Amazon argues that its advertising program with affiliate members does not establish any physical presence of the affiliates or Amazon within the state of New York. Likewise Amazon also cited a statement in its agreement with affiliates which stated that nothing in the agreement creates any partnership, joint venture, agency, franchise, sales representatives or employment between the two parties. Hence none of the affiliates are soliciting business for the company. And besides, Amazon claimed that it has no way of finding out whether those affiliate websites are really residing in New York.

At this time, the New York government is still preparing the state defense against the petition filed by Amazon, and New York’s attorney general is handling the defense.

Via [Internet News]