Sales tax collection by online vendors.

• Author: Douglas, Roger

Amazon.com, a retail online vendor, recently suffered a setback in a New York court (Amazon.com LLC v. N.Y. State Dept. of Tax. & Fin., No. 601247/08 (N.Y. Sup. Ct. 1/12/09)), where it was contesting a newly enacted New York statute requiring online vendors with no direct physical presence in New York to collect sales tax on goods sold into the state. The court dismissed Amazon's complaint for failure to state a cause of action.

The law requires vendors to collect sales tax on tangible personal property or services sold into New York (NY Tax Law [section][section] 1105, 1131). Under Article 28 of the New York Tax Law, a vendor is defined as "[a] person who solicits business either: (I) by employees, independent contractors, agents or other representatives... and by reason thereof makes sales to persons within the state of tangible personal property" (NY Tax Law [section] 1101(b)(8)(i) (C)). In a Technical Service Bureau Memorandum, New York provided new rules regarding who is presumed to be a vendor (TSB-M-08(3)S (5/8/08)). Under the rules, a rebuttable presumption that the vendor of tangible personal property or services is soliciting business through an independent contractor is created if:

* The vendor enters into an agreement with a resident of New York whereby the resident directly or indirectly refers potential customers to the vendor via a link on an internet website or otherwise in exchange for a commission or other consideration; and

* The vendor's cumulative gross receipts from sales to these referred customers are in excess of $10,000 over the previous four quarters.

This presumption is rebuttable if the vendor can show that the New York resident representative did not engage in any solicitation in New York on the vendor's behalf that would create nexus under the U.S. Constitution during the previous four quarters.

The New York Department of Taxation and Finance provided additional guidance on how to overcome this presumption in TSB-M-08(3.1)S (6/30/08). Under this guidance, a contractual provision between the vendor and a New York resident independent contractor prohibiting the representative from solicitation activities in New York is insufficient to rebut the solicitation presumption. Instead, in conjunction with a contractual prohibition, the New York representative must submit an annual, signed certification to the vendor stating that the representative has not engaged in any prohibited solicitation activities in New York...