Online Retailers Battle N.Y. Nexus

Online retailers Amazon.com and Overstock. com sued the New York State Department of Taxation and state officials over the state’s new definition of Web sellers required to collect sales and use tax. New York changed the definition of vendors subject to the tax to include those who pay a commission or other consideration to a state resident who directly or indirectly refers in-state customers to the seller, including via Web link. The new law was enacted April 9 and applies to sellers doing more than $10,000 in business a year in the state. Sixteen days later, Amazon sued, followed by Overstock on May 30.

Amazon, the seller of books and other merchandise, allows “associates” who post a link to Amazon’s Web site on their own Web sites to receive a percentage of purchases resulting from those “click-throughs.” Discount goods seller Overstock, along with other online retailers such as Netflix and physical stores with online channels such as Wal-Mart and Office Depot, maintains a similar arrangement through an independent third party, LinkShare. Both Amazon and Overstock argued in pleadings for declaratory relief in the state supreme court that the new law violates the U.S. Constitution’s Commerce Clause and the 14th Amendment and is overly broad and vague.

Both said their associates or affiliates are advertisers, not representatives performing solicitations. Despite New York mailing addresses for some associates, the companies said they have no way of knowing whether those associates reside in the state. Also, Amazon said, because the Web is unmoored from geography, “an advertisement on a New York ‘resident’s’ website is no more likely to reach New York consumers than any other state’s consumers.”

Amazon.com LLC v. New York State Department of Taxation and Finance, docket no. 601247/08, N.Y. Supreme Court

Overstock.com Inc. v. New York State Department of Taxation and Finance, docket no. 107581/08, N.Y. Supreme Court

By JofA Senior Editor Paul Bonner.