Amazon To Charge NY Sales Tax June 1

Re: Amazon To Charge NY Sales Tax June 1

I was wondering why no one had brought this up.

According to multiple news reports, Amazon has filed suit challenging this law, which was rushed through the legislature and hurriedly signed by the new governor. In the meantime, though, it appears that they don't want to risk having a bunch of state auditors descending on them; so they're going to comply for now.

Despite what anyone may think, we New York residents actually do owe the tax on the stuff we buy from Amazon (or any other net vendor). It's just that there's no practical way to force us to pay it unless the vendor collects it at the time of purchase. States have been trying to figure out a way to force net vendors to do so for years. This is the latest salvo in an ongoing battle.

M.

Re: Amazon To Charge NY Sales Tax June 1

From what I read when this was passed...the tax would only apply if you bought from them through a portal that was based in NY state.

Re: Amazon To Charge NY Sales Tax June 1

No, it applies to all taxable purchases shipped to NY.

The use of portals based in NY is how the law attempts to establish a "presence" by Amazon in NY state. It's a strained interpretation of the applicable precedent, which is why Amazon is challenging it. But once "presence" is established, the vendor is required to collect sales tax. There is never a situation where some taxable transactions with a state's residents are subject to a state's sales tax while others are not.

M.

Re: Amazon To Charge NY Sales Tax June 1

Like we're not overtaxed as it is, we pay one of the highest sales tax rates already on in-state purchases. This is horseshit, sales tax should be based on where the vendor is not where the purchaser is. They are falling back on the use side of the sales and use tax, so technically we should be paying for any product we purchase or use in NYS. Things don't bode well for us New Yorkers with the new YES Governor we had thrust upon us as a result of our former Gov dippin his noodle.

Re: Amazon To Charge NY Sales Tax June 1

Maybe it should be, but that's not how it works, and it never has. The only thing the vendor's location affects is whether the vendor is obliged to collect it at the time of purchase.

Like it or not, it isn't technical. That is and always has been the law. And it isn't "any" product. There are numerous products not subject to sales tax. That's a big part of what makes collecting it so burdensome unless a vendor is availing itself of the advantages of being "present" in the state -- i.e., by having an office or a warehouse there. The new definition of "presence" in the new NY law stretches the notion beyond the breaking point, IMO, but the courts will have to decide that.

M.

Re: Amazon To Charge NY Sales Tax June 1

Unless there are unknown facts, this is a loser for NY. The 1992 US Supreme Court Quill decision is a refinement of a 1967 or 1968 Supreme Court ruling in the matter of National Bellas Hess. There are already many cases where the internet argument has been shot down. The Quill case involved the State of North Dakota. Quill was a mail order seller sending catalogs into the State and the State tried to assert Quill was getting an economic benefit of services for disposal of catalogs in dumps in the State. An economic benefit alone is not enough but the in-state activity does not have to be directly related to the sales. In the case of Nat'l Geographic (the magazine) vs. California, the State succeeded in its argument as Nat'l Geographic was selling goods via mail order into the State but did maintain a San Francisco and Los Angeles office to solicit advertising space. There is also a well know Ohio case involving Sachs 5th Ave. the dept. store. Sachs set-up a wholly-owned subsidiary (which under the statue is a separate legal entity and that is whom the tax is imposed on) to sell via catalog (SFA Folio was the name). The State tried to assert nexus by the fact that a catalog item was in fact returned to an in-state dept. store. Did not fly. Any co. can set-up a wholly owned subsidiary and has long as that co. is real and has substance the State is wasting its' time. Between the approx. 25 yrs. of Nat'l Bellas Hess and Quill many states tried the route of taxing mail order sales.

It is not practical to tax where the seller is located as then every seller would locate some place like Oregon where there is no sales tax. Many states have stuck lines on their personal income tax returns for use tax due on out-of-state purchases and believe it or not they get some voluntary revenue. NY has always been aggressive that way. In NJ, there were a couple of enterprise zones where the NJ sales tax was half (the idea was to build up a decaying area). NY sent auditors over the State line to take down license plate nos. of New Yorkers' and sent them letters. There are organizations like the Direct Marketing Association that lobby on behalf of mail order sellers. The States' have been wanting Federal legislation for years requiring sellers with revenue of over a certain amount to collect. They make it sound as though it is easy with software for sellers' to collect. That is certainly not the case. NY is one of many States that have local sales taxes and in some of those States the local sales tax is not administered by the State. There are something like 7,000+ taxing jurisdictions in the US with 30,000+ different tax rates with regard to all State and Local Taxes. Localities do not equate to zip codes (you can have a physical address is a County or City that has a zip code for a nearby locality - the City of Atlanta is in 3 different Counties as an example). Tax rates are often different in localities within a State. So sellers' don't want the hassle and the States' can't agree on uniformity. In some States like Colorado, there are Home Rule cities which administer their own taxes. Colorado has something like 47 Home Rule cities and in some cases they don't tax or exempt everything in the same manner as the State. It is very common for a business to get audited by Denver and then by Colorado. The business can also collect the correct amount of total tax for Denver and Colorado and pay one too much and get assessed by the one they short-changed and get left holding the bag as the statute of limitations can be expired with the jurisdiction they overpaid. When audits are done by States' -they often use sampling techniques and then project (multiply) the results of the sample tested over a 3 or 4 year audit period leaving a business with amounts assessed (in those periods not tested) that they have no customers to go back and bill.

Re: Amazon To Charge NY Sales Tax June 1

Amazon could easily dump its New York based affiliates to avoid taxing New York residents. Amazon will have to weigh which brings them more income -- people buying from Amazon.com, or people buying from the independent used book dealers and other independent sellers that the recent ruling now considers part of Amazon (even though they aren't owned by Amazon, or operated by Amazon).

Re: Amazon To Charge NY Sales Tax June 1

If it were that simple, don't you think they would have done it? "Affiliates" are not the issue here. It's advertisers -- hundreds of thousands of them. And as a practical matter, Amazon cannot determine which of those advertisers are in NY. That's what makes this statute so problematic (and I'm trying to use temperate language).

If you really want to understand it, take some time to read the full complaint using the link that Richard has provided.

M.

Re: Amazon To Charge NY Sales Tax June 1

The web presents a whole set of problems as compared to traditional mail order. An IP address does not necessarily equate to where a user or advertiser performs their functions. The ISP or host server can have distributed architecture and the user does not even know the details. Take dial-up with AOL as an example vs. some other ISPs. AOL has extensive parental controls. In order to maintain that, no matter where you dial in from, you are authenticated as a user at their servers in Virginia. The local telephone number you call represents a room in a central office of a telephone company that has a bank of modems. The telephone number you call could even be in a different state - e.g. you're in NY adjacent to the NJ border and you call NJ as it tends to be less used. All AOL knows is the modem bank you called in from under your screen name. Other ISPs may have a half dozen or more gateways where a user will connect to the internet. They too may have modems/routers all over.

Mobile phones went thru a phase where taxation of services was difficult. You make a phone call and it goes to a cell tower which communicates to an MTSO (mobile telephone switching office) which in turn moves it to a regular telephone company CO (central office) and then routes the call. You can make a phone call and have sites picking up the call in multiple jurisdictions. The mobile cos. lobbied several states to tax based on where the initial cell that picked up the call was located. With a mobile phone you can also choose an area code that does not correspond to where you live.

The point is that with electronic transmissions, equating them to a particular jurisdiction is much more difficult than it is with traditional sales. The States' pretty much are concerned with keeping their current revenue base. The laws and enforcement of laws is also not always done (and I'm being very kind) by personnel who have the best knowledge about how the technology works and who also really know how to properly go about their job of collecting the full amount of revenues the jurisdiction is entitled to under that statutes so they make a decision to pick on something. It's much easier to point the finger at someone else vs. admit to not being able to bring in projected revenues to meet budgets that may be the result of their own shortfalls. There are probably plenty of unregistered businesses they can tax if they make an effort. For example, States have the power to exchange information with the IRS. They can certainly request information to see if someone has income from a source they could generate sales tax. They may even have the information in their own files (e.g. State Income Tax returns) but don't make the effort to go through the work. They're not about to go on record telling current taxpayers their taxes are high as they are not as competent doing their job as they could be. It is much easier to label cos. as tax evaders so that is how it works.

I had a very interesting conversation over dinner with a (former) NY tax commissioner probably about 11 yrs. back. I had just started on a job and to be honest, the company had just started up the tax department and I was in process or registering for NY and a whole bunch of other states. He was being polite to a degree and giving me grief at a table with a whole bunch of people present. I finally mentioned to him that in a former job I had in Philadelphia I was visited by NY (sales tax) auditors who stayed in town and earned salary while they were there and probably NY was not properly paying its fair share of Philadelphia wage taxes for wages earned in the City. I noted to him I knew the Philadelphia taxing officials and could put them in contact with him so he could straighten out their liability. He then laughed and said "let's eat," and that was the last bit of crap he gave out. The tax laws are made by people who don't really understand the technology and what needs to be done to comply with them. Many states exempt food but the definition of food is not the same. NJ may treat popcorn as food and Crackerjacks as candy and therefore taxable. Clothing (as a necessity) may be exempt in many states too, but again the definition of exempt may be different. Try complying with all this stuff and you'll be asking them if a straight jacket is exempt.

Re: Amazon To Charge NY Sales Tax June 1

Nope, because they haven't finished contesting the statute yet.


On reading the complaint I see that Amazon Associates are the issue -- the websites that earn a few cents if someone clicks through and buys a book from Amazon. They're described in the complaint as "some independently operated, New York-based websites post advertisements with links to Amazon are compensated for their advertisements."

I am surprised. I'd have thought that the independent businesses that are based in New York, which advertise their used books or new electronics equipment or whatnot, would be the way in which the government asserted that Amazon has a physical presence in New York.

Given that it is only the Amazon Associates that are at issue, if Amazon loses, they can certainly afford to dump all Associates who are in New York. The Associates program was a great way to give Amazon exposure back when it was new, but now, everyone knows of Amazon.

Re: Amazon To Charge NY Sales Tax June 1

My thinking is that these internet companies need to base themselves in states that have no sales tax. Any compliance with a NY probe would be helped from a state with sales tax. They have a dog in that hunt as well. Wyoming, for example, I think would tell NY to stick it.

If I was opening an internet store, that's where I'd base it.

Re: Amazon To Charge NY Sales Tax June 1

I do business litigation for a living, and that is not how intelligent business people approach litigation. They view it as a last resort. If there is any arrangement that can avoid litigation and allow business to continue, they embrace it. They do not defer such an arrangement pending the outcome of a law suit that will take years to conclude, whose outcome is uncertain, and during which their business may suffer (in this instance, because NY residents may use other internet vendors).

First, a lot of damage will have been done by then. Second, it's not at all clear that Amazon's doing so (even assuming that's feasible) would get them out from under the new statute. If the affiliate program really was enough to make them a New York vendor, it's not clear that terminating the affiliate program would change that status. That's part of the vagueness that the suit challenges.

It's a nice-sounding theory, but it has no basis in tax law.

M.

Re: Amazon To Charge NY Sales Tax June 1

I've been getting charged Kentucky sales tax by Amazon for some time now. I'm guessing that more states want to cash in.

-R

Re: Amazon To Charge NY Sales Tax June 1

They may have a warehouse in the state, or some other B&M presence. If a catalogue or net company maintain a physical site it's not unusual to get charged tax.

If you look at the bottom of the screen at the end of most As Seen On TV deals, you'll see some states have to be charged sales tax. That happened to me with X10 because they have a site near the Jersey shore.

Re: Amazon To Charge NY Sales Tax June 1

Not the case - Amazon has had a warehouse in Kentucky for a bit. -
Google Maps

Once you have physical presence (e.g. office, warehouse) in a State, a sales rep (either company employee or independent contractor) or even someone visiting the State on a regular basis for the purpose of sales solicitation you are pretty much done for nexus with regard to sales taxes. For (State) income taxes, you are protected by (Federal) P.L. 86-272 which requires you do more than mere sales solititation (e.g. physical presence or performing services) in order for a State to make you subject to an income tax. States have interpreted some things a bit differently. An example would be something like the Clairol case in NJ where a rep went into beauty salons and was doing demos on how to use the product and that was considered beyond mere sales solicitation.

Re: Amazon To Charge NY Sales Tax June 1

That's a great story, Phil.

It also illustrates how insanely complicated this area can be and why the net companies have a fair argument that imposing these collection duties on them nationwide is too burdensome. Every so often there's talk of the states agreeing upon a single nationwide rate for internet sales so that they can say they've eliminated the burden. But they'll never do it, and your story is a good illustration of why.

M.

Re: Amazon To Charge NY Sales Tax June 1

This will also be happening in Texas very soon, due to the Amazon distribution Center near Dallas. The State of Texas is claiming that Amazon now owes them $30 million.
Best
Greg

Re: Amazon To Charge NY Sales Tax June 1

As an Illinois resident I have been charged sales tax by DeepDiscount, but that is because the products are shipped out of Illinois.

Re: Amazon To Charge NY Sales Tax June 1

For all those who may have trouble sleeping at night and need some light reading mat'l to help you get to sleep fast, here's a link to major sales tax nexus cases:

http://www.mtc.gov/Nexus.aspx?id=1362

Re: Amazon To Charge NY Sales Tax June 1

Nonetheless, that is exactly what Amazon is doing -- they're keeping the Amazon Affiliates program alive while they contest the statute. Probably because to end the Amazon Affiliates program (or even end it in New York) would be seen as Amazon essentially saying that the statute is indeed valid in Amazon's eyes. And Amazon cannot concede that, or else other states where Amazon has no physical presence will follow suit.

I believe if they lose, they will end the Affiliates program, at least in New York, as a way of saying "FU".

Re: Amazon To Charge NY Sales Tax June 1

But as I noted in the rest of my post, ending the affiliates program may have no impact. And in any case, the suit will take years to reach a conclusion. A lot can happen in that time.

M.

Re: Amazon To Charge NY Sales Tax June 1

What do you mean, ending the affiliates program would have no impact? It would completely eviscerate New York's ability to charge sales tax in New York, since it is New York's contention that the Amazon Affiliates who are based in New York constitute a presence in New York! New York could just as well try charging a person who has no car an excise tax for their car registration.

Re: Amazon To Charge NY Sales Tax June 1

I do this. The problem is that you sign your return under penalty of perjury as being complete and accurate. A perjury rap would get me disbarred so I send in a couple of hundred miserable bucks a year in liu of trying to fight it.

Re: Amazon To Charge NY Sales Tax June 1

I didn't say "would"; I said "may". Besides, New York is already doing the equivalent of charging a person who has no car an excise tax for their car registration. Under any reasonable construction of applicable precedent, the affiliates program cannot constitute presence for purposes of sales tax law. If some ultimate authority such as the Supreme Court were to reverse prior precedent and hold that it does, we would be faced with an entirely new definition of "presence" that would be substantially more ethereal than the one that currently exists. If so, it is not at all clear that, having once established "presence" through something like the affiliates program, one could simply withdraw it by canceling the program. Indeed, "presence" would have become so attentuated a concept that it could be pretty much whatever a state decided to call it.

I concede that these are highly speculative matters. The reason that they're highly speculative is because the concept of "presence" propounded by the amended NY statute is so utterly vague -- unconstitutionally so, if you read Amazon's complaint carefully. That's a big part of the problem.

M.

Re: Amazon To Charge NY Sales Tax June 1

>> sales tax should be based on where the vendor is not where the purchaser is
> Maybe it should be, but that's not how it works, and it never has.

Actually, that IS how it works in the real world.

I live in Florida. If I go to Denver and buy something, they charge me Colorado sales tax (plus city and county, if applicable). They don't ask me where I live, and they certainly don't send tax payments to my state.

Also, if I buy something via mail order from Denver from a company that is only located there, they don't charge sales tax on it since I don't live in there state.

That's the way it's always been, so don't tell us the opposite.

I'm pretty sure Supreme Court rulings agree with me on this.

That's how it should be online, if taxes are to be collected. The other way is a nightmare for small business, which the boneheads in gov't need to understand.

Re: Amazon To Charge NY Sales Tax June 1

What's the dispositive element in those two examples, the location of the vendor at the time of purchase or the location of the purchaser at the time of purchase? (Hint: If it were the vendor, Colorado sales tax would apply in both examples.)

Besides, those examples aren't analogous to what we're talking about here, and that would be obvious if you'd bothered to include the rest of my quote: To make your examples analogous, we have to look at Florida sales tax, and in both those examples, the vendor isn't obliged to collect it, but you're still obliged to pay it in the form of "use tax", even if you don't bother to do so. Why? Because you're the Florida resident. So once again, it's the purchaser's location -- in the more general sense of residence -- that controls.

You're right that, for the purchase made in Colorado, the vendor doesn't send any money to Florida. Instead, you're entitled to a credit for that Colorado sales tax if and when you pay your use tax to Florida. Don't believe me? Ask the Florida Dept. of Revenue.

I've accurately told you how it is. And the tone is uncalled for.

As an attorney, I'm always interested in continuing legal education, so I look forward to your citations.

I'm not sure why you're arguing with me. Anyone who's actually read my posts here should know that I think this latest NY effort is dead wrong.

M.

Re: Amazon To Charge NY Sales Tax June 1

Hi Michael,

overstock.com did exactly that -- they dumped their NY affiliates and are refusing to collect NY tax. I was surprised that Amazon didn't do it, in that all their prominent NY affiliates (J&R, etc., etc.) would start screaming at the legislature to repeal the law.

My source: NY Times Bits Blog article

Re: Amazon To Charge NY Sales Tax June 1

Thanks for that link, Ted. It'll be interesting to see what, if any, response comes from NY.

I suspect that the problem, from Amazon's point of view, is that they know they're in the crosshairs, no matter what they do. As they say in the complaint, there are plenty of reports of NYS officials referring to this as "the Amazon tax". Maybe they figured the fight was inevitable; so they might as well have it now.

M.