Overstock, Amazon fighting new state tax

New York’s new “Amazon Tax” is causing quite a stir throughout the Web.

The law, which requires Web sites to charge sales tax on any products sold in New York state, was included in the state budget this year first by former Gov. Eliot Spitzer, who resigned amidst a sex scandal, and signed and passed by his replacement, Gov. David Paterson.

The law requires Web sites to register all their affiliates, or vendors, in New York state by June 1.

Amazon.com is fighting the law by filing suit against the state while Overstock.com is taking a different route, canceling all its affiliate agreements in New York and thus, no longer having a New York presence.

Columnists on Forbes.com are calling the law unconstituational, TechCrunch is calling New York’s law misguided and Keplinger’s says collecting the taxes and enforcement would be a logistical nightmare.

Here’s some of what they are saying:

First, Amazon’s official policy:

Effective June 1, 2008, Amazon.com LLC will begin collecting sales tax on items shipped to destinations within the State of New York as New York has enacted a new law requiring out-of-state sellers to collect and remit sales tax based on advertising. Amazon has filed a lawsuit challenging the constitutionality of this provision. However, as required by the law, we must still begin collecting New York sales tax beginning on that date.

Next, TechCrunch’s take on Overstock’s decision:

New York has decided it wants its cut, and has enacted a law that treats affiliates of online stores as extensions of the store itself. Because Overstock has a number of affiliates in New York, it is considered (through some very creative logic) to be physically in the state too, which means that it has to collect taxes from all NY customers.
Rather than collect these taxes, Overstock has decided to cut New York affiliates entirely, removing their “physical presence” from the state. The move sends a message that will likely be echoed by other retailers: If you want to be an affiliate, move out of New York.

Keplinger’s says other states are watching closely to see if they can pull this off as well:

Legal arguments and strategies aside, collection and enforcement would be a logistical nightmare. The state sales tax in New York is 4%, but it’s higher in New York City, for example, where the sales tax is 8.375% — and there are 78 different tax jurisdictions in this state alone.
The law targets online retailers’ relationships with affiliates, which are Web sites that earn commissions from vendors by linking consumers to retailers’ sites. And if an online retailer’s affiliate is based in New York, it counts as a physical presence in the state, requiring collection of the sales tax.
Other states are watching the New York situation closely. The state’s large population accounts for a big chunk of Web shopping, which is forecasted to reach $200 billion this year.

And, finally, here are Forbes’ talking heads:

Serious constitutional concerns plague this bill. Its overextension of state taxing authority to corporations lacking any physical presence in New York appears to be an unlawful tax on interstate commerce. The U.S. Supreme Court’s ruling 16 years ago in Quill Corp. v. North Dakota reaffirmed that a corporation must have a “substantial nexus” with a state in order to be subject to its sales and use taxes. When corporations lack physical presence in a state and rely only on common-carrier contacts or the mail to reach its customers, those corporations do not fall under the requisite “substantial nexus.” Nor does a corporation’s mere licensing of software to customers in another state fall under this requirement.

Now it’s your turn. Is this bill good for New York? Will you continue to buy (or sell) your wares on Amazon and Overstock? The LI Biz Blog wants to hear from you!