Major Online Retailers Argue 'Amazon Tax' Unconstitutional

Proponents of forcing Amazon and other online retailers to collect sales tax — at least in states where it maintains a physical presence — argue large online corporations wield an anti-competitive advantage over storefront businesses forced to collect sales tax

Major online retailers Inc and on Wednesday told a New York state court that they should be allowed to not charge state sales tax.

The case, in the State of New York Court of Appeals, represents one of the first legal tests of recent “Amazon taxes” meant to make online retailers start charging state sales taxes.

Reuters reports Amazon and Overstock attorneys argued before the court that a 2008 New York law requiring companies with affiliates in the state to collect sales tax was unconstitutional.

For New York, millions of dollars in tax collections ride on the court’s decision, expected by June.

Retailers with a physical presence in any state must remit sales tax on purchases made either in a store or online.

But a 1992 Supreme Court decision, Quill Corp v. North Dakota, said retailers lacking a “nexus” of operation in a state need not collect sales tax.

The New York law applies the nexus concept in a novel way. It says that websites with purchase buttons for Amazon or other national retailers get fees based on sales delivered that make the sites local solicitors for the larger retailers.

Lower courts have sided with the state and found in favor of the law. But on Wednesday, some members of the five-justice panel took clear interest in the companies’ argument that web referrals do not constitute a local sales force, but rather are something more akin to buying newspaper advertising.

Connecticut Gov. Dannel P. Malloy announced on Monday that Amazon will build a $50 million distribution facility somewhere in Connecticut and begin collecting sales tax in November under an agreement reached this week with the state.

The agreement comes after more than a year of squabbling between the Internet giant and the state of Connecticut after the legislature passed a bill requiring Amazon to charge consumers sales tax. The state has so far been unable to collect revenue from the tax.

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