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New York: Amazon & Overstock Must Collect Tax

  • Mar 28, 2013 | Gail Cole

 The New York Court of Appeals: Click-Through Nexus is Constitutional

The New York Court of Appeals has ruled against Amazon and Overstock, determining that New York State's 2008 amendment requiring certain remote vendors to collect and remit sales tax does not violate the U.S. Constitution's Commerce Clause. Rather, their relationship with affiliates creates "a substantial nexus" with the state.

Amazon and Overstock took NY to court over the Internet Tax (Tax Law § 1101 (b)(8)(vi)), which they alleged "is unconstitutional on its face because it violates the Commerce Clause by subjecting online retailers, without a physical presence in the State, to New York sales and compensating use taxes."

The plaintiffs bore the "substantial hurdle of demonstrating that the Internet tax is unconstitutional on its face," and they failed to convince the court.

The NY decision, dated March 28, 2013, reads:

"The world has changed dramatically in the last two decades, and it may be that the physical presence test is outdated. An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet. That question, however, would be for the United States Supreme Court to consider."

According to the court, the physical presence of an affiliate's website owner is "relevant to the Commerce Clause analysis." This is because "through these types of affiliation agreements, a vendor is deemed to have established an in-state sales force." Therefore, "[v]iewed in this manner the statute plainly satisfies the substantial nexus requirement."

The court acknowledges that the "dormant Commerce Clause has been interpreted to prohibit States from imposing an undue tax burden on interstate commerce." However, it points out that "in the absence of an improper burden, entities participating in interstate commerce will not be excused from the obligation to pay their fair share of state taxes."


"Although it is not a dispositive factor, it also merits notice that vendors are not required to pay these taxes out-of-pocket. Rather, they are collecting taxes that are unquestionably due, which are exceedingly difficult to collect from the individual purchasers themselves, and as to which there is no risk of multiple taxation." 

Amazon has not yet commented on the ruling, but Overstock chief executive Jonathan Johnson said the ruling means "the court battle will likely continue." He suggested that it's time for the U.S. Supreme Court to sort out conflicting state laws and rulings."

New York Tax Commissioner Thomas Mattox told the Wall Street Journal that the Internet tax has generated "about $500 million of state and local sales taxes … representing about $6 billion of sales into New York." It's worth fighting for that revenue.

It should be noted that the vote in favor of New York State was 4 to 1. Chief Judge Lippman wrote the prevailing opinion, and Judges Graffeo, Read and Pigott concurred. Judge Rivera took no part.

Judge Smith, dissenting, argued that affiliates of  Amazon and Overstock were not the equivalent sales agents, but rather "media in which Overstock and Amazon advertise their products."

Read more about the New York ruling on Amazon, Overstock and affiliates.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.