New York's new online tax law is now facing lawsuits from two big-name online retailers.
A month ago, Amazon sued that Empire State over its so-called Amazon Tax, and on Friday, cut-rate e-tailer Overstock.com filed its own suit, reiterating that the Amazon Tax affects more than just Amazon.
Under Governor David Patterson's new $122bn budget, online retailers with New York-based affiliate marketers are considered to have a "physical presence" in the state, and that means they're required to collect and remit sales taxes from New York-based shoppers.
The new legislation took effect yesterday. Amazon has agreed to collect the tax while its lawsuit plays out, but Overstock has not. Before filing its suit, the Utah-based outfit severed ties with approximately 3,400 New York affiliates. As CEO Patrick Byrne told us, his Utah-based outfit can't afford to collect those extra dollars.
"We had two choices: Either raise our prices to New York residents or give up our New York affiliate business," he said. "And since our affiliates make up such a small fraction of our business, cutting affiliates made the most sense.
"Suddenly having to pay [roughly] 8 per cent tax on 10 per cent of our sales would be a really bad trade off."
Overstock also told us that in cutting affiliates loose, it was "sending a message" to New York lawmakers. But it sent a much larger message on Friday. Like Amazon's suit before it, Overstock's complaint insists that Governor Patterson's legislation is illegal under both the New York and US constitutions.
A 1992 US Supreme Court decisions says that retailers needn't collect sales tax unless they have a physical presence in the state where the customer resides. Otherwise, customers are required to declare the tax on their. But few do.
Neither Amazon nor Overstock maintain warehouses or offices in the Empire State. But you can bet that both make an awful lot of money there. And if they're required to collect sales tax, they'd both make less. Shoppers will be more likely to shop elsewhere. ®