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Sales & Use Tax Tips for June 2008
RECENT NEW YORK INTERNET TAX TRIGGERS CONSTITUTIONAL CHALLENGES
Is This A “Quill vs. North Dakota” Nexus Challenge All Over Again?
Amazon.com and Overstock.com have both initiated challenges to a recently enacted New York statutory provision that requires out-of-state Internet retailers with no physical presence in New York to collect and pay New York sales and use taxes on goods purchased by New York residents.
Amazon.com has filed a lawsuit in New York Supreme Court challenging the constitutionality of a recently enacted New York statutory provision that requires out-of-state Internet retailers with no physical presence in New York to collect New York sales and use taxes.
Similarly, in its complaint, Overstock alleged that because some independently operated, New York-based Web sites post advertisements with links to Overstock and are compensated for these advertisements, Overstock will now be presumed to have engaged in "solicitation" under this statute. As a result, Overstock contends that it must collect and pay New York sales and use taxes on the receipts from all of its sales to New York residents or face civil and criminal penalties, despite the fact that it lacks any physical presence in New York and that no solicitation by it actually exists.
New York is claiming that the mere presence of an out-of-state seller’s link on an in-state business’ website is sufficient to create nexus if the out-of-state seller compensates the in-state business for sales generated as a result of such link. Merely having a link on one’s website is a passive activity and, in our opinion, does not rise to the level of “active” solicitation of sales.
This is Quill vs. North Dakota all over again! Other states are likely to be closely watching to see if New York’s law holds up and, if so, will likely follow suit. In our March '08 Sales Tax Tip, we focused on Nexus. New York’s new law brings this key issue to the forefront of sales tax management concerns.
Our professionals can help minimize potential penalties and interest and make sure your company is in compliance with sales and use tax laws. We can also assist in proactively obtaining voluntary disclosure agreements in the event your company has undiscovered sales and use tax liabilities. Voluntary disclosure agreements are an effective way to minimize penalties and interest and can also often limit the look back period. For more information please see the Exposure Resolution section of our website.
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* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
