New York Court Tosses Out Amazon Sales Tax Challenge

ABA Calls on Members in Other States to Contact Legislators

In a significant victory for the state's independent retailers, this week a New York judge dismissed a lawsuit filed by Amazon.com challenging the state's Internet Sales Tax provision. The provision, which went into law on June 1, 2008, requires online retailers with certain selling activities in the state, such as Amazon.com, to collect and remit sales tax on sales made in New York State. A similar lawsuit by Overstock was also dismissed, according to Reuters.

In dismissing Amazon's challenge, Judge Eileen Bransten wrote: "Amazon should not be permitted to escape tax collection indirectly, through use of an incentivized New York sales force to generate revenue, when it would not be able to achieve tax avoidance directly through use of New York employees engaged in the very same activities." Bransten added, "To the extent that the exercise [of tax collection] may be burdensome, it is a cost of doing business associated with the decision to contract with New York residents and offer them incentives for bringing them sales when such an arrangement is profitable to the vendor."

The judge concluded, "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."

ABA COO Oren Teicher said, "It is extremely gratifying that the New York State Supreme Court's decision in this case so categorically affirms the responsibility of all retailers to obey existing sales tax law and to collect the required sales tax on Internet sales. We strongly encourage the taxing authorities in other states throughout the U.S. to follow New York's lead on this issue and to take the necessary steps to ensure that all retailers comply with the law."

Eileen Dengler, executive director of the New Atlantic Independent Booksellers Association (NAIBA), also lauded the New York court decision. "We are delighted with the judge's decision. Booksellers and their trade associations worked very hard on this issue, and we hope that states will look to this ruling and know that e-fairness can be achieved."

Teicher noted that the New York Court's decision could have ramifications in the other 44 states that collect sales tax, especially as many states grapple with significant budget shortfalls. Toward that end, he noted that ABA will make available in the January 22 issue of Bookselling This Week a revised sales tax letter that booksellers will be able to adapt to send to their state lawmakers and governor.

"We are encouraging our bookseller members with any connection to a state legislator who might be sympathetic to our efforts to arrange a meeting with him or her regarding e-fairness," said Teicher. "We will provide you with the necessary briefing, materials, and information -- and, in some cases, might be able to participate in the meeting with you. Given the court victory here in New York, which has brought about concrete and positive change for state businesses, it is imperative that we maintain our momentum and keep the pressure on." Booksellers who have a legislator in mind, or would like to discuss this issue further, should contact ABA Public Policy Liaison David Grogan at (800) 637-0037, ext. 6662, or via e-mail at dave@bookweb.org [1]. In addition, Grogan can help walk booksellers through the process of setting up a legislative meeting and can answer any questions about ABA's Campaign for E-Fairness.

In early April 2008, the New York State Legislature passed a final budget that included the Internet Sales Tax provision. The provision applies to non-New York State retailers that have $10,000 or more per year in affiliate sales, assuming they do not have nexus in the state through other means (e.g., a warehouse or office).

However, just weeks after the budget was approved, Amazon.com, LLC, and Amazon Services, LLC, filed a complaint in the Supreme Court of the State of New York challenging the Internet Sales Tax provision in the state's budget. Amazon claimed that the provision was "unconstitutional" because the statute "requires out-of-state Internet retailers, with no physical presence in New York, to collect sales and use taxes," as reported at the time by Wired.

The legislative victory in New York was the culmination of months of intense lobbying by New York's independent booksellers and the American Booksellers Association -- a campaign that included letters, e-mails, phone calls, and personal visits to legislators in Albany, the state capital. ABA's efforts included coordinating lobbying activities with other associations representing independent retailers in New York and working closely with NAIBA and the Retail Council of New York, which played a crucial role in face-to-face discussions with key elected officials in Albany.

Other independent trade groups participating in the campaign for e-fairness included the American Specialty Toy Retailing Association, the Coalition of Independent Music Stores, the Independent Florist Association, the National Association of College Stores, the North American Retailer Dealers Association, and the National Bicycle Dealers Association.--David Grogan [1]