Amazon Loses Round in N.Y. Nexus Fight

A New York state trial court dismissed’s challenge to a law that establishes sales tax nexus through in-state “associates” whose Web sites feature links to the online retailer. Amazon and another Web seller,, separately sued the state’s Department of Taxation and state officials last spring after New York extended its definition of “vendor” to include a seller who enters into agreements with in-state parties to solicit business on behalf of the seller by means specifically including Internet links. The law requires such sellers, whether physically present in the state or not, to collect New York state taxes on sales to New York residents. (For previous coverage, see “Tax Matters: Online Retailers Battle N.Y. Nexus,” Oct. 08, page 96.)

The Supreme Court for New York County dismissed Amazon’s complaint Jan. 12. Amazon had argued that the law violates the U.S. Constitution’s Commerce Clause because it imposes tax collection obligations on out-of-state entities who have no substantial nexus with New York. The court, however, said the law passes constitutional muster because it requires a contract between a seller and a New York contractor, referrals by the contractor to the seller, payment of a commission to the contractor and a threshold of $10,000 annually in total sales to New York customers via the arrangement. An arrangement that meets those requirements, such as Amazon’s, reflects a “conscious decision” by the seller, and the seller thereby “avails itself of the benefit of in-state contractors compensated for referrals,” the court said.

As for whether the arrangement constitutes solicitation by the associates, as opposed to Amazon’s characterization of the relationship as merely one of advertising, the court said Amazon doesn’t discourage its associates from reaching out to customers “and pressing Amazon sales.” Consequently, the court said, it didn’t matter that Amazon doesn’t expect associates to actively solicit business, or even that associates’ contracts prohibit them from offering customer discounts for purchases made after customers “clicked through” to Amazon from their Web sites.



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