Current State of Affairs

New York State and the Amazon Tax

As you are probably aware, New York in 2008, New York State enacted a law designed to require out-of-state online retailers to collect sales tax on purchases made by New York State residents (the “Nexus Law”).  The Nexus Law creates a rebuttable presumption that an out-of-sate seller is soliciting business in New York if the seller enters into an agreement with a New York resident pursuant to which the resident refers customers through a link or internet website to the seller in exchange for a commission.  The net effect of the Nexus Law is that the responsibility to collect sales taxes is now imposed on an out-of-state seller that uses an in-state resident to solicit business from New York residents through an internet website.

In 2008, both Amazon.com and Overstock.com filed suit against New York State seeking injunctive relieve on the grounds that the Nexus Law is unconstitutional. In January 2009, the court rejected the each plaintiff’s constitutionality arguments and granted the State’s motion to dismiss the complaints. Amazon and Overstock appealed.

On November 4, 2010, the New York State Appellate Court held that the Nexus Law on its face does not violate the United States Constitution, but that further factual discovery is required to determine if the law, as applied specifically to Amazon.com and Overstock.com, violates the taxpayers’ constitutional rights.  

We have pulled together the following summaries which we hope you will find helpful:

•  The law firm of Davis & Gilbert’s November 2010 Tax Alert titled “New York State Amazon Law Upheld on Appeal” provides a detailed summary of the case and can be found here;

• On November 8, 2010 the law firm of Sutherland Ashbill & Brennan LLP issued an alert titled “Litigation Challenging New York's Controversial Nexus Statute Continues” which can be found here;

• On November 4, 2010, the Tax Foundation issued a New Release titled “New York Court Sends ‘Amazon Tax’ Case Back for More Information” which can be found here; and

• You can read the full text of the opinion issued by the New York State Supreme Court, Appellate Division, First Department, which can be found here.