Amazon sues New York over Amazon Tax

No respect for genius

By Cade Metz in San Francisco • Get more from this author

Posted in Financial News, 2nd May 2008 18:36 GMT

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Amazon has sued New York over an ingenious new law that would force the mega online retailer to collect taxes it doesn't like collecting.

Last week, New York Governor David Paterson rubber stamped a $122bn state budget that enshrines what everyone is calling The Amazon Tax. Paterson and his state legislature have decreed that Amazon and other online retailers must collect New York sales tax even if they don't maintain warehouses or offices in the state.

Thanks to a pre-Internet-revolution Supreme Court case involving a mail order catalog business, American e-tailers are required to collect sales tax only if they have a "physical presence" in the state where a customer resides. Otherwise, federal law says, the customer must declare the purchase on his next tax return.

Of course, few customers remember to do so. If remember is the right word.

With their new law, Paterson and company argue that "affiliate marketers" count as a physical presence. You know, affiliate marketers - independent web sites that drive traffic to Amazon and other e-tailers in exchange for a cut of their profits.

Like we said: ingenious. New York expects to collect an additional $50m through the new law.

But Amazon doesn't like The Amazon Tax. It would hurt the bottom line. If Amazon customers can't, um, save on sales tax, they may go elsewhere. So the world's largest retailer has promptly sued the Empire State. Thanks to Wired, you can view the suit here (PDF).

Amazon is adamant that The Amazon Tax is constitutionally unsound. The company argues that the new statute is "overly broad and vague" and that it violates the equal protection clauses in both the New York and US Constitutions by intentionally targeting Amazon.

We say that New York has a right to its tax money. ®

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