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N.Y. Lawmakers Near Vote on 'Amazon Tax'

As New York lawmakers hash out the state's budget, one contentious issue may have a dramatic impact beyond the Empire State: A provision requiring many online retailers to collect sales tax on state residents' purchases.

The provision, now facing a coming vote as part of state legislators' 11th-hour efforts to pass a state budget, could require e-tailers to collect taxes even if they have no employees or offices within the state.

If signed into law with the budget, the so-called "Amazon tax" would apply to merchants offering commissions in exchange for customer referrals, a practice known among Internet retailers as an affiliate program.

Many online retailers, such as Amazon, Barnes & Noble and Buy.com, have programs that allow individuals or organizations to include a link to the e-commerce site on their own Web page. The affiliate receives a commission for sales generated through the referral.

Especially if other states follow suit, the rules of e-commerce will change dramatically. Some warn that shopping online will become a less attractive proposition as the burden of tax collection shifts from the states to businesses.

Amazon has been lobbying vigorously against the bill, claiming that it would be unreasonably difficult to keep track of the complex web of state and local tax codes -- while effectively raising taxes on consumers.

Additionally, while the provision merely shifts the onus of collection from the state to the sellers, Amazon executives told InternetNews.com in February that it would have the practical effect of increasing taxes on consumers.

A spokeswoman for Amazon this week said the company could not comment on the bill until it had a chance to review it in its final form. [cob:Pull_Quote]

The bill's supporters, including trade associations such as the Retail Council of New York State, countered it simply shifts the onus of collecting the tax onto businesses.

To date, consumers have been responsible for reporting their own purchases from out-of-state companies on their state income tax returns and paying a use tax on those items.

Additionally, requiring Web businesses to collect sales taxes would level the playing field between bricks-and-mortar businesses and their online counterparts, according to Ted Potrikus, the Retail Council's executive vice president and director of government relations.

"Collecting the sales tax on purchases made over the Internet is not a new tax," Potrikus told InternetNews.com. "This is pretty much all I've talked about with the state legislators since February."

He added that many bricks-and-mortar retailers also maintain e-commerce businesses -- so they're already required to navigate the intricacies of local tax codes when shipping items to any online shopper living in a state where they have a store.

"If [offline retailers] can figure out how to charge, collect and remit the right kind of sales tax in every jurisdiction in the country, I think the Internet companies can do the same," he said.

The move comes as states are finding that the honor system of consumers' reporting and paying use taxes is falling short. For one reason, many people do not know that they are required to report out-of-state purchases. Supporters of such bills also maintain it's impractical for states to enforce collection on an individual level.

In the budget he submitted, then-Gov. Eliot Spitzer estimated that requiring businesses to collect Internet sales taxes would boost the state's revenue by $47 million in 2008-09, and $73 million in 2009-10.

As the bill now stands, any e-commerce company that derives more than $10,000 of revenue from New York-based affiliate referrals will be required to collect sales taxes on all purchases shipped to New York addresses. Businesses will have to register as tax vendors by June 1.

Spitzer had introduced the idea in November in a memo from the state tax commission, but rescinded it the same day as media outlets began reporting the controversial new policy. Spitzer said it was not the right time to increase taxes on New Yorkers.