Contests New York Tax on Internet Sales has filed a lawsuit in New York Supreme Court, claiming that a recent New York statutory provision, which requires Internet retailers with no physical presence in the state to collect and pay sales and use tax on purchases made by New York residents, is unconstitutional. The provision presumes a retailer “solicits” business in New York if it compensates any in-state entity for directly or indirectly referring customers to the retailer. Under this statute, Amazon is presumed to “solicit”, due to its relationship with independently operated, New York-based Web sites that earn a commission by posting advertisements containing links to on their own sites. Amazon asserts that no solicitation actually exists, and therefore substantial nexus has not been created, because the geographically untethered nature of the internet means that an advertisement on a New York resident’s website is no more likely to reach New York consumers than any other state’s consumers. Amazon seeks a declaratory judgment that the statute is unconstitutional, and therefore invalid and unenforceable, reliving the corporation from compliance. A similar lawsuit has been filed by (, LLC v. New York Department of Taxation and Finance, New York Supreme Court, New York County, No. 08061247, complaint filed April 25, 2008)

Posted on September 5, 2008