Amazon has set up shop in the New York State capital in Albany, lobbying state legislators to block a measure in the governor’s budget that would require out-of-state online retailers to begin collecting sales taxes on orders shipped to New York addresses.
“This, in fact, would be a tax on New York consumers, not on out-of-state companies,” Paul Misener, Amazon’s vice president of global public policy, told InternetNews.com.
A spokesman from the governor’s office countered that the bill does not create a new tax, but rather places the onus of collecting sales taxes on out-of-state retailers.
Currently, states’ e-commerce taxation relies on the honor system. Consumers are expected to report online purchases they make from companies that do not collect sales tax because they have no base of operations within the state.
The honor system evidently has fallen short, as Gov. Spitzer expects the bill to increase revenue for the state by $47 million this fiscal year, and $73 million the following year.
Spitzer floated the same idea in November, but quickly pulled it off the table, saying it was “not the right time to be increasing sales taxes on New Yorkers.”
The governor’s spokesman declined to comment on what conditions had changed that would make now a better time to reintroduce the measure.
The proposed bill would only apply to online retailers that use affiliate programs to generate referrals.
[cob:Related_Articles]Many online retailers, including 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.
The bill defines affiliates as “representatives” of the company, akin to someone hired to distribute fliers to solicit customers. This means that a company such as Amazon, which has no employees or operations in New York, would be required to collect state sales tax because some of its affiliates live there.
Out-of-state retailers would become responsible for collecting New York sales taxes if their annual revenue from affiliate referrals exceeds $10,000.
The measure would not apply to online retailers that do not use affiliate programs.
Misener is lobbying legislators to block the governor’s bill in their review of the budget, and calling on them to join with other states in the Streamlined Sales Tax Project (SSTP), an organization devoted to simplifying the way states and retailers levy and collect sales taxes.
Misener said that states like Michigan and North Carolina, both members of the Streamlined Sales Tax Governing Board, had considered plans similar to Spitzer’s but scrapped them in favor of the federated approach.
The SSTP’s Web site lists 17 states as full members of its governing board and five as associate members. New York is not a member.
Scott Peterson, executive director of the Governing Board, said that New York is regularly involved with the project’s meetings. He told InternetNews.com that his organization was focused on simplifying the sales tax codes throughout the country and had no opinion on Spitzer’s proposal.
If the New York legislature approves the governor’s budget with the out-of-state taxation clause intact, it could face a significant legal challenge. A 1992 U.S. Supreme Court ruling held that states cannot require companies to collect sales taxes unless they have a “substantial physical presence” within the state.
In the Quill v. North Dakota ruling, the judges said that the arcane web of state and local tax codes puts an unreasonable burden on interstate commerce.
Amazon hopes that this precedent will spur New York to scrap the tax proposal and join with the other states in the SSTP’s push to simplify states’ tax codes.
“Other states have chosen not to follow this path in part because of the legal uncertainties,” Misener said.
The governor’s office argues that collecting sales taxes on out-of-state commerce is important to ensure that smaller, in-state retailers are not put at a competitive disadvantage to sites like Amazon.
When Spitzer announced his budget last month, the Retail Council of New York State praised the tax initiative for trying to create a “level playing field.” The Council said it preferred a national approach to e-commerce taxation as Amazon is advocating, but that such efforts had bogged down.
“New York must stop sanctioning sales tax avoidance practices and stop giving unfair pricing advantages to out-of-state retailers at the direct expense of the storefront, taxpaying merchants who are the backbone of our Main Street economies across this state,” James Sherin, president and CEO of the Council, said in a statement.
“Let merchants compete on service, price and product, not tax policy,” he added.
