Tax in the Age of Amazon

November 13, 2007 9:28 AM

New York State goes after Amazon "affiliates." So if you, as a New Yorker, link to your book on Amazon, you are now an independent contractor and shall be taxed accordingly (PDF).

John Smith is the author of a guide book to kayaking on New York lakes and rivers. The book is listed for sale on an e-commerce retail Web site. Mr. Smith maintains a Web site that contains a variety of information on kayaking and also contains a link to the e-commerce retail Web site through which visitors to his site may purchase his book. For each visitor that follows this link and purchases his book from the e-commerce retail Web site, Mr. Smith is entitled to receive compensation from the e-commerce retailer. Mr. Smith regularly speaks on the subject of kayaking at forums within the State. In the interest of earning commissions from the ecommerce retailer, he actively markets his book at these events by referring attendees to his Web site, where potential purchasers can click on the link to the e-commerce retailer’s Web site and purchase his book.

Based on this arrangement, the e-commerce retailer is considered to be soliciting business through Mr. Smith, who is acting as an independent contractor, agent or other representative of the e-commerce retailer, and making sales of taxable tangible personal property to persons within New York State. Therefore, the e-commerce retailer must register as a New York sales tax vendor, collect the New York State and local sales taxes, and file the required sales tax returns.

posted by mattbucher (32 comments total)

Thanks for helping to spread the word about this. But just a quick note: It's the bookseller, not the author, who will be liable for collecting and remitting the tax from customers.
posted by maud at 9:39 AM on November 13, 2007

Why shouldn't states collect the appropriate sales taxes on internet purchases and arrangements?

The internet is a complex web that nearly defies any attempt to apply and collect appropriate taxes and fees that storefront operations are subject to. Truth be told, let's just consider ourselves lucky (as vendors and as consumers) that we've escaped the tax-man for this long... but, it's not going to last much longer.
posted by HuronBob at 9:40 AM on November 13, 2007 [1 favorite]

Thanks for the clarification, Maud. What are the chances that Amazon has already struck a deal with the NY State Dept of Taxation?
posted by mattbucher at 9:42 AM on November 13, 2007

Thanks for clarifying that, maud. I was getting the same reading—it seems like individual affiliates will be the last link on the chain of consequences here. Amazon et al are the ones who are going to have the headache out of the gate when NY starts leaning on this.
posted by cortex at 9:42 AM on November 13, 2007

New York loves to assess taxes it simply doesn't deserve, and in some cases isn't even owed.
posted by oaf at 11:28 AM on November 13, 2007

Matt, I don't know whether the NYS Department of Tax & Finance has been in negotiations with Amazon and other Internet retailers behind-the-scenes, or whether this memorandum is a surprise to those retailers. I've been wondering the same thing.

But I do think the Department has them over a barrel. If they don't sign up and start collecting, they're potentially on the hook for uncollected tax for all items sold during all open periods -- going back to the start of their affiliates programs (assuming there were NY participants from the beginning). Case law establishes that it only takes one representative for a state to tax all of a company's sales into the state. No doubt there will be arguments about what constitutes a representative or agent, and whether the affiliate relationship rises to that level, but, without getting too technical, let's just say that the Department has been very canny in selecting its examples.

It'll be interesting to see whether other states follow suit.
posted by maud at 11:36 AM on November 13, 2007

If Amazon doesn't have a physical presence in NYS, then NYS won't be able to go after anyone but the individual booksellers.
posted by oaf at 12:18 PM on November 13, 2007

I think this will get shot down because of interstate issues, which I think are a federal issue. I'm not a lawyer, I just remember the last time a state tried to tax a company that didn't have brick and mortar stores in the taxing state that it was an interstate issue that ended up losing the case for the state.

Maybe some of our real lawyers remember the actual issues/laws though.
posted by Peecabu at 12:30 PM on November 13, 2007

Don't most ultra-huge businesses like Amazon maintain an agent in every state just to avoid having to deal with legal problems like this?
posted by maxwelton at 12:31 PM on November 13, 2007

"If Amazon doesn't have a physical presence in NYS, then NYS won't be able to go after anyone but the individual booksellers."

Oaf, Peecabu, & MaxWelton: You might want to review, for starters, the case of Scripto v. Carson (discussed here).
posted by maud at 12:36 PM on November 13, 2007

The way I understand it is that this affects Amazon affiliates. SO if you add Amazon links to your site and get a 10% commission of that, you are now called an independent contractor of Amazon's since you are soliciting business in New York State (via your affiliate ads), but the tax is paid by the end consumer if they are a NY resident (right?).
posted by mattbucher at 1:05 PM on November 13, 2007

It's always confused me why certain retailers (Apple, Dell) charge sales tax (and provide a field like "type your Zip Code to calculate tax") and others like Amazon don't bother at all.
posted by mattbucher at 1:10 PM on November 13, 2007

Matt, yes, essentially, although I'm sure there will be disputes about what kind of affiliate relationship is sufficient to create the necessary presence in the state. If you read the New York memorandum closely, you'll see that the example about affiliate authors is also tied to their physical sales solicitations -- in the form of readings, etc. -- in New York.

But it is Amazon (or any Internet business operating under a similar arrangement) that is required to collect and remit the tax. That's not the affiliate's responsibility.

(This may just confuse things further, but theoretically consumers are already obligated to pay use tax directly to the state on items they purchase from Internet retailers who don't charge sales tax. The vast majority of people have never even heard of the use tax, though, and it's a logistical nightmare for a state to enforce it.)
posted by maud at 1:20 PM on November 13, 2007

Oh, and as for why some retailers charge and others don't: Traditional "brick-and-mortar" stores -- Barnes & Noble, for instance -- already have a physical presence in the state and are already required to file. So they have to charge tax on all New York sales, whether those occur in physical stores or online. I'm oversimplifying slightly; anyhow, there was some Borders & B&N litigation a few years ago.
posted by maud at 1:32 PM on November 13, 2007

theoretically consumers are already obligated to pay use tax directly to the state

Which is blatantly unenforceable since it's a tax on imports from another state.
posted by oaf at 1:34 PM on November 13, 2007

If New York State presses this issue, Amazon will drop all its New York booksellers, and subsequently be in the clear.
posted by oaf at 1:35 PM on November 13, 2007

Oaf: Maybe you should head on over to the United States Supreme Court and set those Justices straight on the unenforceability of the use tax, since your contention flies in the face of established precedent.

As for Amazon being in the clear if it drops its affiliates, I don't think so -- not based on the state's memorandum -- but you obviously have no understanding of sales and use taxes, and no interest in acquiring any, so I think I'm done here.
posted by maud at 1:47 PM on November 13, 2007

There have been people successfully charged use taxes, mainly for purchasing cigarettes in bulk in an attempt to avoid paying the state taxes.
posted by drezdn at 1:50 PM on November 13, 2007

Maybe you should head on over to the United States Supreme Court and set those Justices straight on the unenforceability of the use tax, since your contention flies in the face of established precedent.

Well, we've long known that they ignore parts of the Constitution they don't like.
posted by oaf at 1:57 PM on November 13, 2007

maud, you obviously have no understanding of MetaFilter, and no interest in acquiring any, so I think you ought to be done here.
posted by oaf at 1:58 PM on November 13, 2007

Oaf: It's important to understand that what you think should or shouldn't be fair, legal, or consitutional has no impact on actual law and legal doctrine.

FYI, Maud and the other blogger linked in the FPP are actually experienced tax attorneys who are experts in NY state tax law.
posted by Artifice_Eternity at 2:02 PM on November 13, 2007

Personally, I suspect Amazon will not cut off its affiliates in NY. Even if it did, NY's memo seems to indicate that Amazon would still be liable for taxes on past sales by NY affiliates.

Also, if NY's policy sticks, other states' tax agencies will pursue the same course against Amazon. If Amazon were going to end the affiliate program for NY residents and businesses, they'd have to end it everywhere. And that would probably be a net loss for them, even considering the tax liabilities.

B&N has an affiliate program, and they do pay state sales taxes in NY (and anywhere else that they have a brick-and-mortar store, presumably).

But I am not a tax attorney, so I'm just speculating.
posted by Artifice_Eternity at 2:07 PM on November 13, 2007

Well, actually, maud, it appears from the memo that Amazon could, if it wanted to be stupid about it, register by December 7 (thus avoiding the back taxes) and then cancel all NY affiliates (thus avoiding taxes going forward). They won't do that, because to do so would be an admission that the affiliate programs create taxable agencies, and they certainly don't want to make that admission in NY or any other state, but it looks like they COULD do that, I believe, from my limited reading.

IAAL but IANATL (thank God).
posted by The Bellman at 2:34 PM on November 13, 2007

Why shouldn't states collect the appropriate sales taxes on internet purchases and arrangements?

I am curious as well.
posted by mrgrimm at 2:36 PM on November 13, 2007

Because that would totally suck.
posted by cortex at 2:48 PM on November 13, 2007

It's important to understand that what you think should or shouldn't be fair, legal, or consitutional has no impact on actual law and legal doctrine.

Yes, and it's important for maud to understand that saying that I have no knowledge of tax law, and no interest in acquiring any, is wrong on both counts, and more ignorant than I might be in this thread.
posted by oaf at 2:50 PM on November 13, 2007

And maud claiming to know what the outcome is going to be is just laughable.
posted by oaf at 2:53 PM on November 13, 2007

I understand why the states don't like it... But I kind of like the current arrangement. Makes already-cheap Amazon even cheaper!

And it's not like they're a store in my state. Or even a building somewhere. All they do is put stuff in UPS boxes and send it my way.
posted by sparkletone at 6:26 PM on November 13, 2007

But I kind of like the current arrangement. Makes already-cheap Amazon even cheaper!

In the short and obvious term yes, but in the long term that's less money your state is collecting in taxes. As more and more people in your state move to making their purchases through Amazon, your state will definitely start to see sales tax shortfalls.

In turn, they'll either cut services, raise taxes, or raise "fees."
posted by drezdn at 7:42 PM on November 13, 2007 [1 favorite]

The other option is that the states will actively hunt down things like use fees (ie. the tax you pay on things you don't pay sales tax).

This happened in my state when high taxes on cigarettes lead to people buying large quantities on line tax free. The state tracked buyers down and taxed them.
posted by drezdn at 7:47 PM on November 13, 2007

In turn, they'll either cut services, raise taxes, or raise "fees."

Indeed! But sales tax here in Chicago is 9%, so taxless purchases are clearly a non-trivial savings. I will miss them when they're gone.
posted by sparkletone at 6:45 AM on November 14, 2007

Well, despite support from independent booksellers, the New York Sun and others started characterizing the policy as a "new tax," and apparently Spitzer told the Department not to pursue it.
posted by maud at 4:11 PM on November 14, 2007