April 10, 2013
The New York State Court of Appeals dealt Amazon.com, LLC and Overstock.com, LLC another blow by ruling in favor of the state in this epic legal battle that began back in April of 2008. The court agreed that New York’s internet tax law is constitutional. The law, often referred to as “click-through
nexus,” establishes a taxable connection (nexus) with New York when an out of state seller (e.g., Amazon) places a link on an in-state resident website and generates a specified amount of sales
as a result.
In the eyes of the Appellate Court, that connection satisfies constitutional nexus requirements
necessary to allow New York to impose a sales tax collection responsibility on companies like Amazon.
The law which was enacted in April of 2008, reads as follows:
“a person making sales of tangible personal property or services taxable under this
article (‘seller’) shall be presumed to be soliciting business through an independent contractor or other representative if the seller enters into an agreement with a resident of this state under which
the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller, if the cumulative gro
ss receipts from sales by the seller to customers in the state who are referred to the seller by all residents with this type of an agreement with the seller is in excess of ten thousand dollars
during the preceding four quarterly periods”
After analyzing the actual law it is clear how New York takes the concept of “nexus” and effectively applies it to today’s internet based businesses. Amazon has a program it calls the “Associates Program” through which third parties (e.g. New York residents) agree to place Amazon links on their in-state resident websites. Nexus is created by virtue of the web site owner’s presence in New York and the fact that the website link steers New York customers to Amazon.com. Many websites are geared toward predominantly local audiences – including churches, schools, etc. Amazon has thousands of associates with New York addresses. In the court’s opinion, these New York associates are effectively the same as an “in state salesforce.”
How does this decision against Amazon and Overstock impact you? As a New York resident
taxpayer it means the state will continue to require internet sellers with “click-through” nexus
(like Amazon.com) to continue charging sales tax on all sales of taxable goods delivered into
New York. Other sellers like Overstock.com who cancelled their own Associate program years
ago still can make sales to New York residents without charging sales tax. For internet sellers
located outside the state of New York, this decision means that you must consider the tax
ramifications of linking up to New York resident websites. For New York internet sellers this
ruling is a reminder that they also have the same click-through nexus concerns with other
states because New York is not the only state with this type of internet tax/nexus law.