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Retail giant attacks statute’s constitutionality

Recent changes to New York’s tax laws have internet retail giant Amazon.com striking back against New York state legislature and its new $122 billion budget.

Amazon’s complaint stems from a revision in New York state tax law that changes the definition of businesses obliged to pay state sales tax. Under previous code, Amazon was not obligated to pay sales tax for New York customers because it did not have employees or offices in the state of New York, and it did not actively solicit New Yorkers’ business. Under the new tax code, however, Amazon must to pay sales tax because it “directly or indirectly” pays New York-based entities for referring customers to the site through its popular Amazon Web Services and Associates Programs – effectively classifying Amazon’s “solicitors” as an appropriate physical presence.

Seattle-based Amazon called the new tax law “unconstitutional,” claiming that New York state legislators unfairly targeted it. In its complaint, filed (PDF) in last April, Amazon says New York’s new tax statute violated the Commerce and Due Process clauses of the United States Constitution, in addition to other clauses, which chiefly prohibit taxing out-of-state entities and “overly broad and vague” presumptions of “solicitation.”

Amazon’s accusations of being unfairly targeted are supported by the fact that the revised statute is commonly referred to – even by state officials – as the “Amazon Tax.”

At stake, both in the state of New York and elsewhere, are the supposedly millions of dollars in uncollected “use” taxes, which state tax authorities have no way of tracking. Taxpayers are supposed to tally up out-of-state purchases for tracking on April 15, however few people, if anyone at all, choose to do this.

The New York Times reports that the state expects to collect at least $50 million from the tax code changes.

Consequently, the seemingly voluntary “use tax” is a growing problem in a 21st century world of e-commerce and globalized business, as taxpayers are opting less and less to buy from business within the state. However, out-of-state businesses are protected from interstate taxation by the Supreme Court’s 1992 Quill v. North Dakoka decision, which found that out-of-state businesses are not obliged to pay taxes to a state in which it doesn’t maintain a significant “nexus” of operations.

Representatives for neither Amazon.com nor the New York State Department of Taxation would comment on the suit; N.Y.’s taxation department may choose to provide further comment after it has responded to Amazon’s complaint.





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