New York Court Upholds Sales Tax for Online Retailers

Story originally appeared on the New York Times.

New York’s highest court rejected arguments Thursday by two Internet retailers that they should be exempt from collecting state sales tax.

Amazon.com, the biggest online store, and its much smaller competitor Overstock.com had separately sued to challenge a 2008 state law that required online retailers to collect sales taxes on purchases made by New York residents. That served effectively to raise prices on the sites by nearly 10 percent, reducing their competitive advantage against brick-and-mortar retailers.

In a statement, Amazon denounced the New York Court of Appeals ruling as conflicting with precedents by the United States Supreme Court and decisions by other state courts. Overstock said it was considering appealing to the federal Supreme Court.

Central to the dispute was the question of affiliates, which are independent sites that link to a retailer in return for a commission. Thousands of Amazon affiliates are based in New York.

“The bottom line is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden,” the appeals court wrote in its decision. The suits had been dismissed by lower courts.

The struggle over Internet taxes has intensified in the last few years. Brick-and-mortar retailers have been increasingly insistent that Amazon in particular was unfairly avoiding its responsibility to make sure its customers paid sales taxes. Other states began debating measures like New York’s.

In response, Amazon struck deals in California, New Jersey and a few other states to build warehouses in exchange for finally agreeing to collect taxes. In states where it does not need warehouses, Amazon has generally refused to budge.

The retailer says it supports a national solution rather than a state-by-state effort. After many years of inactivity, progress is being made on that front, with a majority of United States senators indicating this month that they would support an Internet tax measure.