New York Taxes Internet Sales - Register Now or Else

Eva Rosenberg, MBA, EA - New York offers limited amnesty regarding uncollected sales tax to merchants shipping products to New York State customers. Register before June 1, 2008.

New York State just hit Amazon.com, big time, for unpaid sales taxes even though Amazon does not have a physical location in the state.

Amazon is suing, claiming the New York law is unconstitutional based on a 1992 U.S. Supreme Court ruling that claims states are prohibited from requiring out of state retailers to collect sales tax unless the company has a physical presence in the state. Quill vs North Dakota

Watch this closely. This will be a landmark decision.
If NY wins, then two things will happen:

  • 1) California first, then all other states, will adopt
    similar laws.
  • 2) All companies that have affiliate programs will have to register their business in each state where they have affiliates. (An affiliate program pays commissions to folks with Internet sites for sales generated by their links – like Amazon.com.)
  • 3) The businesses will have to register for a sales tax
    identification number – AND that means they will also have to file income tax returns in that state to report the income earned from sales there. It’s going to be really, really messy.
  • Another interesting note regarding NY State.

    The WebPro article quotes Tom Bergin, a spokesman for the New York state Department of Taxation and Finance.

      “The legislation provides for a limited amnesty for online sellers who register as sales tax vendors and start collecting taxes by June 1, 2008.”

      “If the seller registers and starts collecting sales tax by
      June 1, the seller will not be liable for tax not collected
      for sales tax quarters prior to June 1. Conversely, if you
      don’t register and it is later determined that you should
      have, you could be subject to tax dept audit for quarters
      prior to June 1.”

    This is quite a threat.

    Yet, there is nothing on the New York State Department of
    Taxation and Finance website to alert anyone to this need.
    It’s not on the home page.

    It’s not on their News (recent additions) page.

    It’s not on their Businesses page.

    Nor can I find mention on their Sales and Use Tax Page

    Heck, they don’t even mention this on their Abuse and Compliance page.

    And searching for amnesty brings up very old pages.
    Nothing about sales tax.

    So, if NYS wants compliance before June 1st, just how is
    the business public expected to comply?

    What should you do if you run an Internet business?

    Use your best judgment.

    Note: California and Kansas won their sales tax case against Scholastic Book Clubs, Inc. because the courts decided that teachers who took orders in the classrooms were agents of the company:

  • Scholastic Book Clubs, Inc., v. State Bd. of Equalization, 207 Cal. App. 3d 734, 255 Cal. Rptr. 77 (1989)

  • Redetermination of Scholastic Book Clubs, Inc., v. State Bd. of Equalization - reducation of sales taxes assessed - not eliminated.
  • In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 536, 920 P.2d 947 (1996).

    Are affiliates, whose sites simply link to Amazon also considered agents? Or is this just advertising?

    Look at your clients with online businesses who ship products to New York State, or whose business touch, however faintly, on New York. Ask these questions:

  • Do they have an affiliate program, paying commissions to other sites who refer sales to them? (Like Amazon)
  • Do they have 'agents' of any kind, located in New York State, who hand out order forms? (Like Scholastic)
  • Do they have consultants or advisors who work with their clients locally?
  • Do they have repair services or installers, who service or install products shipped to New York, even if they are full-blown companies registered in New York in their own right?
  • Do they have any kind of fulfillment service that ships from New York or answers phone calls in New York?
  • Is their website hosted in New York?

    It's time to help them decide whether to register in New York.

    Note: It takes time to register - you have to register as a foreign corporation or other entity first, before you can register for a sales tax certificate. Remember to look up the cities where your clients' agents are located. You may need a business license in those towns, too.

    For more resources on this issue, visit http://www.streamlinedsalestax.org/

  • This blog

    Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

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