Thursday, May 15, 2008

New York Sales Tax Dominos Start to Fall!

It all began as a push to get to collect sales tax on purchases shipped to New York residents and has now begun to impact other online merchants.

Sales Tax law is difficult to understand, but basically if an online retailer has a physical presence (warehouse, sales office, etc.) in a state like NY, they are required to collect sales tax for purchases shipped to that state. In Amazon's case they do not have a physical presence in New York, so the law was expanded to include Affiliates (Associates in Amazon lingo). So, since Amazon has Associates who reside in New York, they are deemed to have a presence in the state, therefore must collect sales tax. The new law has been dubbed the "Amazon Tax".

Amazon has chosen to fight the new law in court, as un-constitutional, but will begin collecting sales tax for purchases shipped to New York on June 1st in compliance with the law until the issue is resolved in court. They chose not to cancel their associates program for New York residents.

Overstock on the other hand has decided that they will cease allowing New York residents to participate in their Affiliate Program, rather than collect sales tax for the state of New York.

Well, the dominoes continue to fall as, Zappos CEO Tony H. said on his Twitter account this morning: "Ack! NY state sent us notice: Starting June 1, collect sales tax on all NY orders." My guess is Zappos management is hunkered down in their home state of Nevada, trying to figure out their response.

If Zappos has been contacted, it is clear that most major online retailers (with affiliate programs) have received similar notices, so expect the fallout to continue.

I'm wondering if eBay has received a similar notice and even though they do not sell directly to the consumer, their marketplace facilitates these transactions and they certainly do have affiliates in New York.

Thankfully, Amazon has sued to have this law over-turned. We can all hope that they are successful.

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