Split Decision in Appeal of NY "Amazon Tax" Case

On November 4, 2010, the Appellate Division (1st Department) of the New York State Supreme Court issued an opinion in the so-called Amazon Tax case. In its opinion, the Appellate Division revived some (but not all) of the previously dismissed claims of Amazon.com and Overstock.com.

The case arose after New York State revised its tax laws to require retailers operating commissioned-based affiliate programs (such as Amazon.com's Associates Program, or the affiliate program of Overstock.com) to collect and remit sales tax in New York State if they had annual sales greater than $10,000 generated by NY-resident affiliates.Amazon and Overstock in particular brought a lawsuit against the New York State Department of Taxation to overturn the new law; the suit was dismissed in January 2009 by Judge Eileen Bransten of the New York County Supreme Court (the trial court in New York). Amazon and Overstock appealed the dismissal to the Court of Appeals (the state's highest court), which in turn sent it down to the intermediate Appellate Division from which the November 4 opinion was issued.

In ruling on Amazon.com's appeal, the Appellate Division upheld Judge Bransten's rejection of most of Amazon and Overstock's constitutional and legal arguments. Nevertheless, the Appellate Division decided that there was insufficient evidence on the record to reject certain of the plaintiffs' claims having to do with how the affiliate programs were actually managed, and the substantiality of the marketing activity involved. It therefore reversed Judge Bransten's dismissal of those particular claims, and ordered further proceedings based on the revived elements of the Amazon/Overstock complaint.

The Appellate Division's decision may be read online here. Our interactive marketing law practice attorneys are available to answer any questions you may have about this law, Amazon's case, and your own affiliate programs.

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