Important Developments in the New York State Online Sales Tax

The New York Online Sales Tax (commonly known as the Amazon tax because of its presumed target Amazon.com), went into effect on June 1, 2008. Under the law, out-of-state online retailers are required to collect and remit New York sales tax if sales in New York exceed $10,000 in the prior 4 calendar quarters, and the vendor has a New York presence by utilizing, for example, New York-based sales representatives, such as affiliates.

The New York Department of Taxation has issued a Technical Service Bulletin that provides important guidance relating to the new New York Online Sales Tax legislation. Importantly, under the bulletin, the Department advises that the mere storage of advertising on server or equipment located in NY would be insufficient to create a nexus. Additionally, New York-located affiliate pay per click arrangements (as opposed to commissions) would not be sufficient to constitute in-state nexus.

The Bulletin also explores several examples where affiliate activities could create a rebuttal presumption negating an in-state nexus. Importantly, the Bulletin provides that where an affiliate does not undertake vendor promotion other than placing a link on the affiliate's website, that this would constitute a rebuttable presumption of a lack of a nexus. To take advantage of this rebuttable presumption, the affiliate cannot promote traffic to the vendor's website through activities such as emails or other advertising such as flyers, newsletters, or telephone calls. Vendors should also consider having contractual limitations of regarding New York affiliate activities to help demonstrate the applicability of the presumption.

Overstock.com further developments. On Friday, May 31, 2008, Utah-based online retailer Overstock.com filed a lawsuit challenging the New York law that expands the state's requirements for online retailers to collect sales taxes asking the court to issue an injunction and declare the law unconstitutional.

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