Return of the Web Tax

David Paterson: photo by David Shankbone An article in today’s Wall Street Journal notes that NY Governor David Paterson has revived former Gov. Spitzer’s controversial plan to collect sales tax from out of state online retailers. The provision, included in the current budget, is expected to raise $70m.

The article notes:

A 1992 Supreme Court decision called Quill bars exactly this type of money grab. The Supremes ruled that forcing such obligations on companies with no employees or buildings in a state could cripple interstate commerce. Without Quill, small Web merchants would have to answer to 7,500 state and local tax collectors.

and

The Governor apparently believes he can get to companies like Amazon through New Yorkers who run ads for Amazon on their Web sites. In fact, if nonemployees with some business relationship with a company were enough to establish physical presence, then Quill would essentially be meaningless.

The courts may well ax the Paterson tax on these grounds. But until they do, some companies will feel pressure to pay instead of doing battle with a state government.

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One thought on “Return of the Web Tax

  1. An article in The Register details overstock.com’s response which has been to dump all it’s NY affiliates forthwith.

    From the article:

    Byrne estimates that Overstock’s New York affiliates account for less than 1 per cent of the company’s total sales – and maybe as little as a half of one per cent. So that’s what the company’s giving up while Amazon goes to court. Jonathan Johnson, Overstock’s senior vice president for corporate affairs, confirms that if New York’s new law is reversed, Overstock will reinstate its New York affiliates.

    Johnson also believes that Overstock’s stance on affiliates will put added pressure on New York to change its ways. “We’re sending a message to lawmakers that they’ve made a silly decision. They’re hurting businesses in New York, causing people like us to turn those businesses off.”

    Of course, Overstock acknowledges it has only two large affiliates in the Empire State. The real pressure is coming from the Amazon suit. And you have to wonder if Overstock’s stand has in fact weakened Amazon’s case. Among other things, Amazon contends that New York’s law was directed “at a class of one” – i.e. Amazon. But obviously, there’s at least one other in Amazon’s class.

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