2009 - 2010 New York State Budget Expands Affiliate Nexus Definition

A provision in the proposed 2009 - 2010 New York State budget, unveiled by Gov. David Paterson on December 16, would significantly expand the definition of affiliate nexus for online purchases. The affiliate nexus statute is one of the ways in which Gov. Paterson is looking to close an estimated $15.4 billion budget deficit. If approved, the provision is expected to garner about $9 million in revenue for 2009 - 2010 and $12 million the following year. The provision would go into effect on June 1, 2009.

"We are pleased to see that New York State is continuing to take concrete and important steps to clarify existing sales tax laws," said ABA COO Oren Teicher. "With most projections indicating that sales tax revenues will decrease significantly in the first quarter of 2009, Gov. Paterson's provision to expand the definition of affiliate nexus to close loopholes that have allowed companies to skirt sales tax laws is the right thing to do. New York State is leading the way toward ensuring that all retailers are treated the same. We are hopeful that other states will follow suit."

The new provision in the proposed budget would stop companies from attempting to avoid nexus with New York State by segregating their Internet and catalog operations into affiliates that are separate from their bricks-and-mortar stores. It does so by taking aim at retailers that have both a physical presence in New York State and an independent but affiliated entity in another state (or vice versa), and the out-of-state entity has not been collecting and remitting sales and use tax under the auspices that it is a different company. Under the proposed provision, a company creates nexus in the state if an in-state affiliate uses a trademark, service mark, or trade name that is the same as or similar to that of the remote affiliate.

Moreover, nexus is created when the in-state affiliate engages in activities that help the remote affiliate develop or maintain a market for its goods or services, as in when a retailer puts its distribution arm into a separate subsidiary that is present in New York and uses that affiliate to distribute into New York the products sold by the remote affiliate.

In April 2008, in what was a significant victory for indie retailers in New York State, Gov. Paterson signed into law the Internet Sales Tax provision. The provision requires out-of-state retailers such as Amazon.com to comply with New York State sales tax laws and to collect and remit sales tax on sales to state residents.

The victory was the culmination of months of intense lobbying by New York's independent booksellers, the American Booksellers Association, the New Atlantic Independent Booksellers Association, and the Retail Council of New York State. The campaign included letters, e-mails, phone calls, and personal visits to legislators in the state capital.

In May 2008, Amazon.com, LLC; Amazon Services, LLC; and Overstock.com filed a complaint in the Supreme Court of the State of New York challenging the Internet Sales Tax provision in the state's budget. Since June 1, Amazon.com has been collecting sales tax in New York State. --David Grogan