Internet Sales Tax Outcomes Amazon's Affiliates


The conflict continues among large Internet retailers and the countries over charging sales tax for purchases on the internet. This is particularly the case where the merchant has no"nexus" or existence in the state where the customer is located. As I discussed in "Internet Sales Tax: Year-End Status," a prior Practical eCommerce article, states are attempting to be creative by redefining"nexus," or attaching additional reporting requirements to retailers who sell to their occupants from out-of-state.

The Colorado Example

Colorado is one state that has attempted to place extra burdens on retailers by requiring out-of-state retailers to report information about Colorado residents that buy from them. On January 13, 2011, Direct Marketing Association (DMA) won a preliminary injunction against Colorado, requiring the state to suspend all authorities of its reporting and notice requirements which were imposed on several out-of-state retailers. DMA wrote about this on its own advocacy blog, at "DMA Stops Colorado from Enforcing Tax Reporting Law, Marketers Must Not Comply."

This injunction was issued based on the U.S. District Court's determination that the DMA would probably prevail on its claim that the data reporting requirements on out-of-state retailers violates the Commerce Clause of the United States Constitution. This clause -- Article 1, Section 8 of the Constitution -- prohibits actions by countries that interfere with interstate commerce and denies the states the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce.

Activity by Amazon

Amazon has been taking its own activities against state laws both in the courts and beyond the legal system. Soon after the passing of the Colorado law, Amazon declared all its contracts with its affiliates (i.e., third parties which it pays for referrals) in Colorado since the state law expands the nexus principle to include in-state affiliates. Amazon has taken this position for all countries that enact a law which would require Amazon to collect sales tax based on its own contracts with affiliates in a country.

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Amazon has apparently gone to extremes in Texas. Texas evaluated Amazon with $269 million in uncollected sales taxes from online sales, pursuant to this state's sales tax laws. Amazon then announced that it is closing a distribution centre and canceling its performance expansion in Texas. Within this environment of the demand for"job creation," those activities by Amazon -- from the court system -- have begun to place political pressure on the countries enacting Internet sales tax legislation.

Now, Amazon's competitors might be attempting to take advantage of Amazon's struggle with the states. The Wall Street Journal published "Amazon Partners Wooed By B&N," saying that Barnes & Noble has announced its plans to sponsor any Amazon affiliates that was terminated by Amazon because of its tax dispute. Other opponents of Amazon with comparable programs might have plans to do the same.

The New York Case Against Amazon, Overstock.com

As of the date of this guide, the New York situation with Amazon and Overstock.com hasn't yet been solved. (See "Internet Sales Tax: Year-End Status" for additional information.) A lower court ruled in favor of New York, but a New York Appellate Court revived it in November 2010. Even though the Appellate court ruled that the statute wasn't unconstitutional on its face, the revival of the situation keeps hope alive for internet retailers -- according to the claim that the statute is unconstitutional because it's applied to the net and their businesses.

Summary

There are approximately 16 countries that have enacted legislation like the New York's. Many other revenue-thirsty countries are waiting to determine the results of this case and will probably be crafting their own variations. Based on the determination of the court, Amazon and other businesses will probably adjust their business operations to prevent the"affiliate" nexus definition. As mentioned above, Amazon has already begun to do so in many countries.


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