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Online Sales Tax Update; Bad News For Internet Retailers?

Posted on 1.13.2009

Back in April of 2008, the state of New York enacted a new tax law which required out-of-state retailers to collect and remit sales tax if they have a commission agreement with an in-state resident (that means affiliates) if earnings totaled more than $10,000 in revenue annually.

Is this a major setback for the tax free Internet retail? Perhaps, but not yet. The bad news came yesterday as a New York judge dismissed the case and claims of both Amazon and Overstock who filed lawsuits to stop the Internet sales tax collection. Count on both Amazon and Overstock, however, to appeal the rulings.

According to Judge Eileen Bransten, "In the end, the Commission-Agreement Provision does not broadly tax any and all Internet sales to New York consumers. It requires a substantial nexus between an out-of-state seller and New York through a contract to pay commissions for referrals with a New York resident along with realization of more than $10,000 of revenue from New York sales earned through the arrangement. The neutral statute simply obligates out-of-state sellers to shoulder their fair share of the tax collection burden when using New Yorkers to earn profit from other New Yorkers."

Should Amazon and Overstock ultimately lose their appeals, it is possible that you may see the end of affiliate advertising programs in their current iteration from retailers like Amazon and Overstock.

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