New York Court Dismisses Amazon's Objections To Paying State Taxes

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Remember the Amazon Tax? Back in April, the New York State legislature passed a bill requiring Amazon to collect taxes from New York State residents even though it doesn’t have a physical presence in the state (the normal requirement for retailers). The state got around the physical presence requirement by counting affiliates as part of Amazon. Amazon (and Overstock) filed lawsuits seeking summary judgment against the State of the New York. Yesterday, a New York State judge dismissed those lawsuits, potentially throwing the case into the Court of Appeals.

The question, though, is not whether Amazon should collect New York State taxes. It would be trivial for Amazon to do so during the checkout process for residents of New York. (Update: In fact, it’s been doing so since the law was passed last summer). The real issue is the way the law gets Amazon to do so by dragging its affiliates into it. As I wrote before, this sets a bad precedent:

The law, as written, is just a bad law. And it would set a dangerous precedent. Not because New York State shouldn’t try to collect the $50 million in estimated uncollected sales taxes owed to it. But because the law is tortuous in the way it attempts to do that.

A marketing affiliate is not part of Amazon. If I put some Amazon book recommendations on the side of TechCrunch , set up an affiliate account, and readers click through and buy those books, that does not make TechCrunch part of Amazon. It is a marketing arrangement. Just like someone who sets up an AdSense account does not work for Google.

You can expect more states to try similar ways to tax online retailers as their overall budgets shrink. And you can also expect affiliate marketing programs that have served to grease the wheels of e-commerce become more restrictive. For instance, one solution for Amazon would simply be to cut off affiliate partners just before they hit $10,000 in sales, the minimum threshold stipulated in the New York law. But you see where this will lead—to less overall e-commerce sales and a drop in the massive New York State budget.

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