Court Approves Sales Tax on Online Sellers

Court says Tax law violates the U.S. Constitution's Commerce Clause.

taxesThe highest court in New York ruled today that the state can collect sales tax from out-of-state retailers such as Amazon.com, rejecting online retailers’ claims that the Constitution protects them.

The taxes would apply when online retailers generate at least $10,000 in yearly sales to New Yorkers via commissions through “Associates Program,” which are a popular business model for sites such as Commission Junction, Amazon and Overstock.

Most online commission programs generate revenue using links or banners placed on 3rd party websites which when clicked, redirect customers to a retailers website. If the customer purchases an item on the retailer’s website, the “associate” receives a percentage of the sale.

New York’s sales tax is 4% and all its counties and New York City add an additional tax ranging from 3% to near 5%. Both tax rates apply to Internet sales, according to the state Department of Taxation and Finance.

“The bottom line is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden,” Chief Judge Jonathan Lippman said in Crains New York.

Overstock.com is one company that proactively discontinued their Associate Program in 2008 in order to avoid this ruling.

Online retailers have argued that links on New York websites to their sites are no different than advertising, and therefore should not be taxed.

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