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Wednesday, January 14, 2009

NY Court Clears Way for Taxing Online Sales

The New York Supreme Court yesterday rejected Amazon's constitutional challenge to a state statute requiring online retailers to collect sales tax from New York residents.  Amazon.com v. New York State Department of Taxation, No. 601247-08 (NY Sup. Ct., NY County Jan. 12, 2009). 

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Amazon should stop selling to New York customers. Think they will?

Posted by: Rick C | Jan 14, 2009 9:38:22 AM

NY Supreme Court is different from other state's Supreme Courts. In NY the highest court is the Court of Appeals, there's a Supreme Court, Appellate Division, and a Supreme Court, Trial Division. This looks like it is simply the trial level decision. Bad enough, but at leat there should be two state level appeals, and then federal claims under the Commerce Clause.

I just wonder how the US S.Ct. will view this case.

Posted by: rbj | Jan 14, 2009 10:02:52 AM

You should make it clear to non-New Yorkers that this level of court is at the second level of trial courts, that is, the first trial court with unlimited monetary jurisdiction, and that there are two appellate levels above this: NY Supreme Court, Appellate Division and the NY Court of Appeals. The latter is what most states call their supreme court.

Posted by: Rex | Jan 14, 2009 10:09:49 AM

And the legal and political geniuses running New York still can't figure why long-suffering New York taxpayers are increasingly "voting with their feet." Jeez, at the rate Upstate New York is bleeding people, it'll have the same population density--and tax base--as North Dakota within a few years. Nice.

Posted by: MarkJ | Jan 14, 2009 10:14:05 AM

Just in time as New York will inevitably have to raise sales taxes to pay for it's bloated public employee pension system!

Posted by: Sean | Jan 14, 2009 10:32:39 AM

It's probably worth noting, for those not familiar with NY's unique court naming system, that the NY "Supreme" Court is actually the lowest trial court of general jurisdiction. This ruling will presumably be appealed up to the Appellate Division and then finally to the Court of Appeals.

Posted by: NYC law guy | Jan 14, 2009 10:51:18 AM

IANAL, but... so what? No state court has jurisdiction. It's a Federal question. Not sure why the case even came to a state court.

Am I missing something? Since when are states allowed to tax interstate commerce?

M

Posted by: Mark Alger | Jan 14, 2009 10:52:24 AM

New York Supreme Court is the trial level court, not our high court (which is the Court of Appeals).

Thus, you have to be careful in writing "The New York Supreme Court " when, in fact, you are referring to one Supreme Court trial justice.

Posted by: Turk | Jan 14, 2009 11:25:47 AM

Should be fairly easy for Amazon to stop selling to anyone in NY; that state's judges and politicians have already screwed their own taxpayers in ways yet to be counted, so why not one more? At some point the NY populace, like the Palestinian populace, may see the light.

Posted by: vladtheimp | Jan 14, 2009 11:33:11 AM

Just another reason to say goodbye to New York.

New York, New Jersey, and California. States that are losing population. I wonder why?

Posted by: Brian | Jan 14, 2009 11:42:45 AM

I don't think the final chapter is written. The NY Supreme Court is no the "Supreme Court". That is the Court of Appeals. Second Amazon could drop all NY Business and residents and escape jurisdiction again as NY State is trying to do backdoor on sales taxes.

Posted by: Alex | Jan 14, 2009 11:44:15 AM

NY Supreme Courts are only trial courts. Will this survive appeal?

Posted by: Bob | Jan 14, 2009 11:49:49 AM

It would take spine, and I don't expect it to happen, but wouldn't it be great if Amazon just said "Fine... we'll no longer ship to the state of New York." The outcry from the people who live there that could no longer buy from Amazon would be enough to end this stupidity, and THAT would be something to see.

Posted by: constantine | Jan 14, 2009 12:11:46 PM

Despite being a New Yorker, I think some people here are on to something when they say Amazon should stop selling to New Yorkers. I don't see Amazon cutting off millions of customers, but that is about what it would take to get the average New Yorker to do something about the most dysfunctional government in the country (not the most corrupt--that would be New Jersey, but the most dysfunctional).

Posted by: tim maguire | Jan 14, 2009 1:43:13 PM

Are there certain states that are always taxed online? In CA, I have had to pay taxes on all my online purchases domestic and international.

Posted by: Cog | Jan 14, 2009 2:24:52 PM

Looks like NY is using agency theory to back its claim that the Associates Program gives Amazon physical presence in the state, which is the key to "substantial nexus" for sales taxes under Quill and Complete Auto Transit. So if Amazon dropped all NY residents from the Associates Program, the problem goes away in NY, but other states will surely jump on this bandwagon.

If Amazon instead were to cut off sales to NY, that would certainly be a more dramatic shot across the bow.

One of these days, the US Supreme Court is going to have to update Complete Auto Transit and its progeny for 21st century reality. The longer they stay out of this, the crazier it's going to become for online retailers.

Posted by: Vinny | Jan 14, 2009 3:43:57 PM

Looks like NY is using agency theory to back its claim that the Associates Program gives Amazon physical presence in the state, which is the key to "substantial nexus" for sales taxes under Quill and Complete Auto Transit. So if Amazon dropped all NY residents from the Associates Program, the problem goes away in NY, but other states will surely jump on this bandwagon.

If Amazon instead were to cut off sales to NY, that would certainly be a more dramatic shot across the bow.

One of these days, the US Supreme Court is going to have to update Complete Auto Transit and its progeny for 21st century reality. The longer they stay out of this, the crazier it's going to become for online retailers.

Posted by: Vinny | Jan 14, 2009 3:46:43 PM

The first commenter asks "Amazon should stop selling to New York customers. Think they will?"

They don't have to stop selling to New Yorkers; all they need to do is to cut their ties with New York's creative idea of a physical presence, or "nexus," that is, Amazon.com affiliates who live in NY. That's the route that Overstock.com took.

IANAL, but I've followed this business for a while. This case will most likely fail before the Supreme Court based on their "Quill v North Dakota" and earlier decisions. Affiliates might not fit into the Court's idea of 'nexus' (things like storefronts and warehouses), but I don't recall whether sales reps were specifically in- or excluded.

Might be best for Amazon to not to rile things up, though, because the Supremes pointedly said in Quill that Congress could simply pass a law giving the states the power to compel 'net taxation.

Of course, that would unleash quite a backlash in a recession... but then, the Democrats control the Beltway now. Would they do it? The betting tables are open.

Posted by: Paul Havemann | Jan 14, 2009 4:33:37 PM

NY state court system is of course proper venue because it is a NY state sales tax "collection and making the book open to audit" obligation that is being hashed out, though there is no reference to any sales tax assessment.

Posted by: Doug C. | Jan 14, 2009 4:43:20 PM

Why not set up a clearing house in NJ that everything could be purchased and delivered through for a small fee?

Posted by: La Mano | Jan 15, 2009 2:27:36 AM

Even if this somehow becomes law (doubtful), I doubt Amazon would stop selling to NY residents--there's just too much of a market to ignore. It would mean one of two things though: 1) New Yorkers pay sales tax plus the costs to Amazon to collect and distribute that sales tax on every item they buy or 2) New Yorkers pay the sales tax and every Amazon customer pays the costs to Amazon to collect and distribute NY sales tax.

Posted by: NBS | Jan 15, 2009 5:14:01 PM

The first commenter asks "Amazon should stop selling to New York customers. Think they will?"

They don't have to stop selling to New Yorkers; all they need to do is to cut their ties with New York's creative idea of a physical presence, or "nexus," that is, Amazon.com affiliates who live in NY. That's the route that Overstock.com took.

IANAL, but I've followed this business for a while. This case will most likely fail before the Supreme Court based on their "Quill v North Dakota" and earlier decisions. Affiliates might not fit into the Court's idea of 'nexus' (things like storefronts and warehouses), but I don't recall whether sales reps were specifically in- or excluded.

Might be best for Amazon to not to rile things up, though, because the Supremes pointedly said in Quill that Congress could simply pass a law giving the states the power to compel 'net taxation.

Of course, that would unleash quite a backlash in a recession... but then, the Democrats control the Beltway now. Would they do it? The betting tables are open.

Posted by: Paul Havemann | Jan 16, 2009 12:20:51 PM