Amazon's Suit Over NY Sales Tax Gets Tossed Out By Judge

from the closer-to-the-beginning-than-the-end dept

A judge in New York has tossed out suits from Amazon and Overstock which sought to overturn a state law there compelling them to collect sales tax on purchases made by New York internet users. The law was put into place last year and and immediately raised some eyebrows, as federal law allows states to collect local tax on internet purchases only if the retailer has a physical presence in that state. What set New York’s law apart was that it considered internet retailers’ affiliates, companies or even individuals that sell through the sites, to constitute a physical presence, giving the state the right to collect sales tax. It’s highly unlikely that this is the end of the story with this law — the suits will probably continue in another court, and it may become more common for internet retailers to ditch their New York-based affiliates until things get sorted out, or if the law is upheld. That’s one problematic outcome of the law that’s harmful to the people of New York; another issue is the dangerous precedent this law could set by allowing every locality to tax a wide array of internet purchases made by their residents, creating a morass of taxing jurisdictions for internet retailers to navigate.

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Companies: amazon, overstock

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Comments on “Amazon's Suit Over NY Sales Tax Gets Tossed Out By Judge”

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46 Comments

How does this law harm NY citizens?

In almost every state the Sales Tax laws require that you pay tax on items purchased for consumption. People that do not pay sales tax on Internet orders, then do not pay the sales tax to the state are already committing tax fraud.

All this law does is shift the burden to the seller which narrows the scope of people for the tax man to go after.

Gregsays:

Re: How does this law harm NY citizens?

ummm… are you ignorant or just stupid?

If you order something from Widgets, Inc., and they don’t have a retail store ANYWHERE in your state, then you do NOT owe any sales tax. If they even have ONE retail store in your state, then you DO owe sales tax. And, it is COLLECTED BY THE SELLER who then sends it to the state.

I’m NOT committing tax fraud if I don’t pay sales tax to Texas for ordering books from Amazon marketplace sellers, even if that seller lives in Texas. If YOU want to pay the tax, then nothing is stopping you. But don’t force ME to do it. Typical idiotic liberal thinking.

Tax Lawyersays:

Re: Re: How does this law harm NY citizens?

Hey Greg — Where’d you get your law degree? You should get your money refunded. If you aren’t a lawyer, maybe you should stop giving legal advice (and that includes advice to yourself).

If you didn’t bother to check out the actual law first as opposed to your right-wing talking points, check out the concept of the use tax, and weep when you realize you’ve been committing tax fraud all of these years with your Internet purchases. In fact, I’ve just put in a call to your local tax officials to tell them they’ve got a criminal in their midst! Good luck with the audit!

Gregsays:

Re: Re: Re: How does this law harm NY citizens?

If this were tax fraud, then why is it still going on and no one is being charged sales tax on these purchases?

No, I’m no tax lawyer. I use common sense, something that’s sorely lacking when it comes to taxes. IMO such a tax is a form of taxation without representation. Said retail store is not represented in my state by a physical presence, therefore I do not owe any sales tax. End of story.

If I order from walmart.com, yea, I pay sales tax. If I order from Amazon.. guess what? no store! no sales tax! So, tax lawyer.. get the hell out of my wallet!

Re: Re: Re: How does this law harm NY citizens?

Exactly how is Greg’s ignorance of tax law “right-wing talking points”?

Or do you just have an irrational hatred of conservatives, and need someone to take it out on now that Bush is leaving office?

This IDIOTIC partisanship is getting sickening.

As for this particular discussion, you could be just as wrong as Greg. It all depends on State law. I have no idea what Texas law is, but I DO know that by CALIFORNIA law, if you purchase anything from out of state, whether online or by more traditional mail-order, you DO owe the “sales & use tax”. In fact, there is a place on the California state tax return to enter your purchases.

As far as Michial’s original point – the big change here is that the states are now trying to go after the SELLER – something they have never done before. The end result is going to be stifling online entrepreneurship, since the little guy won’t be able to keep up with all the different jurisdictional regulations.

How does that hurt NY citizens?

I’ll leave you to work out the economics of stifling innovation and competition.

libertysays:

Re: Re: Re: How does this law harm NY citizens?

What a nice do-gooder, we’ve got Albany full of this type of Neanderthal intellegence and now we’ve got it on the net. The only hope we as Americans have left is if this intelligent person has a very short life span, or expires from a socially contracted disease.

Michaelsays:

Re: Re: How does this law harm NY citizens?

Uh – not exactly, Greg.

You’re right that NY residents wouldn’t have to pay a sales tax on items purchased from sellers with no connection to NYS. However, NY residents would have to pay a “use tax”. Check out this link:

http://www.nysscpa.org/cpajournal/2004/704/essentials/p38.htm

Since a few years ago NYS collects a charge on the income tax return, because there was underreporting of use taxes (which technically had to be declared on a separate form). Given the formula that NYS uses, which is based on taxable income, the use tax owed could easily be less than what the sales tax would have been on the same items. But the NYS residents would have to pay the use tax.

Which raises another point – since the use tax could easily be less than the sales tax, NYS residents who buy from Amazon (like myself) could end up paying more if Amazon collects the sales tax for NYS than they would if they made the same purchases and just paid the use tax.

Anonymoussays:

Re: Re: How does this law harm NY citizens?

You are committing tax fraud. You are supposed to pay taxes on that, and it’s refered to as a USE TAX, which you would specify on your yearly income tax return for your state. The problem is for most items, there is no paperwork that the state would have access to to prove it.

For instance, if you bought a car from a retailer, in another state, with no physical presence in your state, you are supposed to pay the USE TAX on that car. And the state can see you register that car, and no sales tax was paid.

However, when you buy say RAM, there is no need to register the RAM with the state, so the state really has no idea that you have new RAM.

Re: Re: How does this law harm NY citizens?

It’s funny how some idiots tend to dismiss any thinking they don’t agree with as “typical liberal thinking”. Some people seem incapable of recognising that the world is not black and white…

As a liberally-minded individual (that is, socially liberal who believes in a live and let live lifestyle, not a tree-hugging hippy), I am finding this stuff tiresome and insulting. Especially when, as in this case, I actually agree with the “conservative”, yet he chooses to insult me regardless because he can’t think past some tired cliches.

Anonymoussays:

Re: Re: How does this law harm NY citizens?

“If you order something from Widgets, Inc., and they don’t have a retail store ANYWHERE in your state, then you do NOT owe any sales tax.”

In most states this statement is simply wrong.

You owe the tax and it is YOUR responsibility to pay it.
Widgets, Inc only collects the tax as a convince to the purchaser in states in which Widget, Inc has a presence.

Being dishonest and not paying the tax has nothing to do with owing the tax even if 100% of people do not pay.

Davidsays:

Re: Re: How does this law harm NY citizens?

You are incorrect. In Texas anybody who purchases something from out of state and consumes it (I.e. uses it) in state is liable for a use tax unless they paid that tax to the seller.

Here is the official website. http://www.window.state.tx.us/taxinfo/sales/faq_use.html

Therefore, if you do not pay the use tax you are committing tax evasion. Whether you get caught or not is another matter.

Anonymoussays:

Re: How does this law harm NY citizens?

In almost every state the Sales Tax laws require that you pay tax on items purchased for consumption. People that do not pay sales tax on Internet orders, then do not pay the sales tax to the state are already committing tax fraud.

All this law does is shift the burden to the seller which narrows the scope of people for the tax man to go after.

This harms everyone. Not only does it violate the interstate trade regulations by permitting a state to force the resident companies of another state to collect local taxes beyond their own physical borders, but it also brings into question what domain the “internet” resides in. If a store ships a good/service between states, do they now have an obligation to know and file all taxes in both states due to the fact that they are collecting tax revenue for a state they do not actually operate in?

The reality is that a sales tax only applies to physical goods purchased within the state and to even think that a state has rights beyond it’s borders to impose tax regulation on residents of another state is absurd.

DanCsays:

Re: How does this law harm NY citizens?

All this law does is shift the burden to the seller which narrows the scope of people for the tax man to go after.

Except the burden is supposed to be on the buyer. The law was specifically passed to target Amazon, and other online retailers such as Overstock.com were affected as well. NY is playing with semantics to loophole around the interstate commerce clause.

The law also harms NY citizens because it encourages online retailers to abandon their NY affiliates.

Rose M. Welchsays:

Re: How does this law harm NY citizens?

Why should it be the seller’s burden? Not all sellers are in the US, you know. You can’t make an Englishmen collect and send off sales tax to the US for those customers.

For that matter, why should New Yorkers have to pay New York sales tax for those transactions? You don’t have to pay New York sales tax when in other countries. Why online? What part of the Internet belongs to New York?

Michaelsays:

Why Subsidize Internet to Harm Local Businesses?

If we don’t like the sales tax, that’s fine — Attack it as a general proposition for all. (In fact, I think sales tax is a regressive form of taxation that should be dropped entirely in favor of more progressive forms of taxation. That’s a different discussion though.)

But, this notion of Internet-exceptionalism carried to sales tax is nothing more than a land grab by those who are robbing the capacity of local businesses to survive in the face of having to charge a significant percentage more than the e-commerce types. Amazon should be put on level playing field with the other retailers, and should no longer be permitted to hide behind a faux argument of non-presence in the state. If it takes Congress to fix a bad SCOTUS decision on this issue, then Congress should do so and give the states the ability to take care of themselves. The Quill decision was dead wrong and needs to be overridden. But, NY’s law is actually perfectly in line with what Quill required. (By the way, under Quill ‘physical presence’ was but one of many ways for a seller to be found to have ‘nexus’ in a state. New York was very careful in crafting its statute to fit within the parameters the SCOTUS laid out.)

Haywoodsays:

Re: Why Subsidize Internet to Harm Local Businesses?

When an item is bought on line it must be shipped, that usually comes very close to the tax on a similar item bought locally. That in itself levels the playing field. The inability of merchants to compete runs deeper than that. While I’ll grant you; a brick and mortar store has a hard time competing due to overhead, some of what retail does is outright gouging. What internet retailers do is keep them honest or put them under, their choice. My favorite internet purchase was a Bosch dishwasher, local places wanted over twice the price of the internet source, including 1500 miles of truck shipping.

Rose M. Welchsays:

Re: Why Subsidize Internet to Harm Local Businesses?

As the manager of a retail store with an e-commerce offering, I am saying that you’re wrong.

First, your terms are all wrong for this blog. Nobody is ‘robbing’ anybody of anything and emotional rhetoric is no way to move most of the readers here. Logic is.

Brick and mortar stores do not have to charge a significant amount more. Or any amount more, for that matter.

My store has a store with rent. My website has a warehouse with rent. My store has sales tax. My website has shipping. My store has employees. My warehouse has employees. The list goes on and on and on and on.

Internet shopping is extremely convenient to consumers but is not more convenient to retailers, especially when you consider the cost of goods lost and/or damaged in shipping, the almost assuredly higher level of refunds, and paying so much shipping back and forth.

In fact, you could effectively argue that physical retailers have an advantage because sales tax is a one-time charge. If a customer returns the item, they are refunded that tax and are not charged again. But if a customer returns an item to an online retailer, shipping must be paid again, and the original charge is not returned to anybody. In general, the online retailers bear the brunt of all of these shipping fees.

Anonymoussays:

We have similar laws in Canada. In Saskatchewan we have the Provincial Sales Tax (PST) and our neighbor, Alberta, does not provincial sales tax at all. So the law says that if you are a resident of Saskatchewan and buy something out side the province of Saskatchewan and bring it into Saskatchewan then you MUST submit the PST. Failure to do so is TAX FRAUD.

Internet Companies that have a business license in Saskatchewan automatically collect your owing PST on purchases. If the internet business does not have a business license in Saskatchewan they leave it up to you to send in the owing PST. Orders coming over the boarder typically have the Federal taxes added on by the board guys but they seem to intermediately collect PST on my orders.

This is next to impossible to enforce or event track. So you can guess how many people actually submit their owing PST amount.

If Amazon pulls up all physical business stakes in New York how will it be possible to the state of New York know when you made a purchase to be shipped to you? How would it be possible for the state of New York to compel a company that has no physical presents in their district to pay taxes.

Evil Mikesays:

Tax = fraud, extortion

Any entity which must support itself by the leeching of blood,er, I mean, money from others does not deserve to exist.

The government’s authority extends from violence–they have armed and violent people working for them, and if you refuse to do what they say when they say you will be beaten and deprived of everything but your breath and heartbeat.

So, the threat of violence vs “give us your money”?
When mafia does it, it’s called “racketeering” and it’s a crime.
When your government does it, it’s called “taxes” and it’s a crime to refuse.

Anonymous Poetsays:

Tax his land, Tax his bed,
Tax the table At which he’s fed.

Tax his tractor, Tax his mule,
Teach him taxes Are the rule.

Tax his cow, Tax his goat,
Tax his pants, Tax his coat.

Tax his ties, Tax his shirt,
Tax his work, Tax his dirt.

Tax his tobacco, Tax his drink,
Tax him if he Tries to think.

Tax his cigars, Tax his beers,
If he cries, then Tax his tears.

Tax his car, Tax his gas,
Find other ways To tax his ass

Tax all he has Then let him know
That you won’t be done Till he has no dough.

When he screams and hollers, Then tax him some more,
Tax him till He’s good and sore.

Then tax his coffin, Tax his grave,
Tax the sod in Which he’s laid.

Put these words upon his tomb,
“Taxes drove me to my doom…”

When he’s gone, Do not relax,
Its time to apply The inheritance tax.

Accounts Receivable Tax
Building Permit Tax
Commercial Drivers License license Tax
Cigarette Tax
Corporate Income Tax
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax,
Fuel permit tax
Gasoline Tax (42 cents per gallon)
Hunting License Tax
Inheritance Tax
Interest expense
Inventory tax
IRS Interest Charges IRS Penalties (tax on top of tax)
Liquor Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Property Tax
Real Estate Tax
Service charge taxes
Social Security Tax
Road usage taxes
Sales Tax
Recreational Vehicle Tax
SchoolTax
StateIncome Tax
State Unemployment Tax (SUTA)
Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft registration Tax
Well Permit Tax
Workers Compensation Tax

Not one of these taxes existed 100 years ago,
and our nation was the most prosperous in the world.
We had absolutely no national debt, had the largest middle class
in the world, and Mom stayed home to raise the kids.
What happened?

Anonymoussays:

I thought the original intention of sales tax was to pay for the infrastructure that allowed your patrons to visit your establishment in the first place. For example, to pay for things like the roads, power grid, and water pipes that allowed you to operate at your location.

How can you justify taxing an entity that does not need this infrastructure to do business?

honzzzsays:

another attempt to make Internet companies 'local' everywhere

Oh, another attempt to make Internet companies ‘local’ everywhere.

Maybe the main reason that Internet is so thriving is that there is very low entry barrier to do stuff. You don’t have to worry – you just start your web and people can use it. This is based on assumption that you (your company, your web) have to obey local law (your locality) and people from all over the world can ‘visit’ you in your home through the magic of Internet.

But there is also another view – you (your web) is accessible from some location and that means you ‘go’ to that location… and so you have to obey their law. On the Internet his means that you have to obey all laws in the world. You have to pay taxes in every country and not only that… you have to know every law in the world and you have to respect many different and often contradictory laws. Who would be able to do that?

People from NY are very irresponsible pushing this principle – because if they think have ‘right’ to tax Amazon based on such vague reasons… so does everyone else… every state, every country in the world. And it’s not just about tax… it’s generally about the law.

Accepting this principle would push Internet to the minimal common denominator of all laws in the world. And if you don’t think this is very dangerous idea just ask yourself: American Internet is accessible everywhere including from some very rigid Muslim countries… if that means that ‘they go there’, that ‘they are present’ in those countries, does this mean that all American Internet has to obey sharia law?

This principle is so dangerous for the functioning of the Internet that if I were CEO of Amazon, I would rather cut all people from NY state off of Amazon’s services than give in.

Jonathansays:

On the other side of the coin....

I kind of wish Amazon would be forced to do this with EVERY state. I am an Amazon Marketplace seller with a physical location in North Carolina, and therefore I am REQUIRED to charge sales tax on my sales to North Carolina residents. The thing is, Amazon REFUSES to allow me to charge a sales tax to North Carolina residents. They tell me that I have to pay those sales taxes myself, which I think is ridiculous. Until they decide to allow me to do so, I just state in ALL of my item descriptions that I will not sell to NC customers, and if anyone from NC tries to buy from me on Amazon I cancel their purchase.

Amazon’s explanation so far seems to have been that is is too hard for them to figure out all the local sales taxes for their buyers, which is just a straight out lie because Amazon already runs Target’s online store for them and Target charges sales tax on ALL purchases due to them having a physical presence in every state. If they can do it on Target’s site, they can do it on their own as well. If they feel they have a legal argument to not tax actual Amazon sales, that’s their business, but they should at least give us Marketplace sellers the OPTION to charge sales tax like Ebay does.

John Doesays:

What we need is a Sales Tax Administration that you just give them a great big bag of money every year and they figure out who to pay. Maybe they pay the state, the county and the city that the purchase was made from. Just think of the jobs created by this new administration! Heck, all the people put out of work by the internet sales companies going out of business could be put to work in the STA! Then we would be back to even. Of course the STA would be very large, so large as to be inefficient, but why should they be different than any other government entity?

DavidBsays:

don't allow shipments to NY

Why harm your affiliates (if you are Amazon or Overstock or whoever)? Just stop allowing shipments to NY addresses for anything sold via your site. Problem solved. When enough consumers get ticked off about this (which will take only a very short time), consumers (i.e the public these lawmakers are supposed to serve) WILL encourage a change in NY law.

Kevinsays:

Rules are state dependent

Similar to Tony’s case in California, Pennsylvania requires the purchaser to pay taxes on all orders that the retailer does not collect. The levels of awareness, compliance, enforcement of this laws is questionable.

New York is pushing the burden of collection to the internet retailers from the private citizen. It is redirecting the responsibility from the buyer to the seller, similar to how the current brick and mortar operations.

The truly onerous burden on Internet and mail order seller is local taxes and exceptions. If they are responsible for state sales taxes, why not collect city and municipal fees as well? Also, some state offer economic incentives zones with lower state tax rates to encourage local commerce, so if a product is shipped to one of these zones what rate applies?

Pushing the burden on the merchant creates a myriad of unintended consequences.

Justin Gsays:

I'm not a communist but...

I’m sure I’m going to be strung up for this but…government and infrastructure is a necessity to our way of life. I think it is pretty nice to have well maintained roads to drive on, parks to enjoy, schools for my children, fire departments protecting my home, hospitals maintaining public health, police making it safe for me to walk the streets. If these things don’t get funding cities deteriorate to slums breeding disease and crime. For example a free clinic was shut down in Baltimore because tax revenue couldn’t support it any longer, the occurrence of syphilis sky rocketed. At first no one cared because the hospital was in a poor area, but all of a sudden kids attending suburban schools started contracting the disease. Citizens were up in arms and the hospital was re-opened. Who would pay for that free clinic if it weren?t the government? How can they provide that service without tax revenue?

My point is it costs money to run a county. We all live here together, we all benefit from the government taking on the responsibility of running institutions that don’t make money but provide infrastructure and stability to our world. The vast majority take this for granted, if you don?t want to pay taxes move to Sub-Saharan Africa and try to run your business and raise your family with little to no infrastructure.

The current tax code was written before the rise of internet commerce. No one could have foreseen the problems and complications it would bring. Sales tax which is the life blood of many communities is being entirely negated. Revenue that was counted on to run the state and local governments, which we have no problem taking from, basically dried up overnight. Now they are scrambling to make up that revenue, introducing new fees, increasing property tax. They are cutting costs, firing lifelong employees, with holding cost of living raises to firefighters.

NY is the first state to step up to the plate and risk the incredible backlash from the business community and the public in general. The backlash you see here.

My solution? Make all taxable internet sales subject to the sales tax at point of delivery.

JPsays:

Re: I'm not a communist but...

Justin G,
You have one of the best arguments on this thread. It is unfortunate to see that few people responded. I agree entirely that society costs money and people need to pay taxes. What would happen to our country if every company registered offshore and didn’t pay taxes? A complete collapse of our way of life. We’d have no schools, no universities, etc…

Regardless of this case (Amazon vs. NY?), it is unfortunate to see so many people selfishly not wanting to pay taxes

argonautsays:

“…creating a morass of taxing jurisdictions for internet retailers to navigate.”

You mean like the morass that already exists with the application of nexus in other types of taxation already?

Until the fed steps in and puts limitations of when nexus can be applied, we’ll end up with even more and more magical “You need to pay!” demands.

J. Quartararosays:

Harming local businesses

The state of VA is also investigating Amazon for not charging VA customers sales tax within the state of VA. For some resaon, even though they have a distribution center in the state, as well as a hosting facility, they feel that they are special and do not do commerce within the state that would justify charging VA customers sales tax. So off the bat they are able to discount 5% against any other retail merchant in VA, and the state of VA is losing potentially thousands of dollars in revenue.

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