Case: LLC and Amazon Services LLC v. New York State Department of Taxation and Finance, Index No. 601247/08 (Sup. Ct. N.Y. 2009)

The One Sentence Summary: A New York court dismissed’s suit challenging the constitutionality of a recently enacted New York State law requiring out-of-state companies, including those engaging exclusively in e-commerce, to collect state sales tax on transactions originating from within New York. had argued that the law violates the Commerce Clause of the U.S. Constitution.

New York’s law (available here) requiring out-of-state retailers to collect sales tax took effect in April 2008. Under this law, an online retailer who pays any New York-based organization (such as an internet-based affiliate) compensation based on sales resulting from a referral by that affiliate to the retailer’s website, must collect sales tax on any such sale made to a New York resident. (A New York-based organization includes any business that was formed in New York, does business in New York, or has a permanent place of abode in New York.) The fact that the online retailer is not itself located in New York, and does not have any connection to New York, is irrelevant. Retailers who generate $10,000 or less from New York sales in a fiscal year are exempt from the law.

Thus, an e-commerce retailer such as who does not have stores, offices or warehouses in the State of New York, must collect sales tax on each sale that it makes to a New York resident if that sale is a transaction for which the retailer will pay a commission or “revenue share” payment to an online affiliate that is based in New York.

From a practical standpoint, this means that e-commerce retailers who do not have a physical presence in New York and therefore did not previously collect sales tax from sales made to New York residents, must register with the State of New York as a sales tax vendor and track sales to New York residents made through New York-based online affiliates in the same way that they track (and collect tax on) sales to residents of states in which they do have a physical presence.

The decision, which was rendered by New York’s State Supreme Court Justice Eileen Bransten, is subject to appeal. Click here for a link to the text of the full decision.