Online Tax Update: Amazon, Overstock and E-commerce Taxes

All eyes have been on the state of New York recently after the new state law that compels e commerce sites to collect taxes for the state went into effect this summer. Recently, the state Senate voted to repeal the tax, but the Assembly has yet to decide its ultimate fate. Amazon and Overstock have been fighting the tax ever since its inception and have responded by cutting off their affiliates based in New York.

The affiliates have pushed for the repeal of the tax, citing the disastrous effects of the legislation on their livelihood. The old precedent for taxing, namely, that the taxed entity had to have a “physical presence” within the state, has been applied to the case of affiliate relationships between an out of state company and its instate affiliates. In short, affiliates had been said to constitute an in state physical presence.

Amazon and Overstock have each challenged the Constitutionality of the legislation. If the law stands, then other states could very well follow suit and apply their own tax to online products and services, but this would become rather complicated and undesirable.

If you are an affiliate marketing company, the law is probably especially odious to you. But there is not yet cause to worry. It seems that the New York affiliates have been successful in pressuring the government to consider repealing the tax. So, in the case that another state is foolish enough to try to imitate the New York tax, I have no doubt that the same thing will happen. But more likely to happen is that states will call for national or interstate standards. It’s a long way off, but it’s going to happen. Let’s just hope that when that day comes, the country, and by the same token the economy, is ready for it.

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