In 2008 New York passed a law requiring Amazon and other online retailers to charge New York customers sales tax. For years, online retailers have largely escaped having to charge sales tax. Since the New York law passed and Amazon brought suit against it, the issue of internet sales tax has grown. Especially now with many states reeling from the country’s continuing economic woes and eager for increased revenue, eyes again turn toward Amazon and other online retailers.
Technically, if you make a purchase on Amazon or another online site that does not charge sales tax, you are supposed to pay use tax on the purchase to your state. Many customers don’t pay use tax, however. In 1992 the U.S. Supreme Court ruled that an online retailer was only required to pay sales tax to states in which it had a physical, brick and mortar presence. The New York law, and its counterparts in other states, levy sales tax on transactions that go through affiliates in that state. For example, if someone living in New York runs a blog and has an agreement to be an Amazon affiliate, to send customers to Amazon through a link on their blog, the New York law requires Amazon to assess sales tax on those sales.
The New York law met legal challenge. In 2009 the New York Supreme Court ruled against Amazon but the New York Appellate Court reopened the case in November 2010. In other states, most notably in Colorado, Rhode Island and North Carolina, similar affiliate sales tax bills were passed. Amazon responded by discontinuing its affiliate agreements with residents of those states.
In July 2010, Congress proposed a solution to the internet sales tax issue. States who joined a multi-state compact called the Streamlined Sales and Use Tax Agreement they would be allowed to charge sales and use tax on online retailers. The proposal has earned support of a variety of states and members of Congress but as yet it has not moved forward.
Illinois raised income taxes on individuals and businesses this year as part of a package to overcome a steep budget shortfall. Just before the end of the last General Assembly, the Illinois House and Senate passed an affiliate tax law that would function very similarly to the laws already in effect in Colorado, Rhode Island and North Carolina. The bill went to the Governor on January 10th. No further action has happened since. If the Governor does not take any action after sixty days (March 11, 2011 is that deadline) the bill will be become law without needing his signature.
While Amazon and other online retailers have tried to fight the increasing drive to tax their transactions, other companies are seizing the opportunity. Many other companies have lobbied for the affiliate tax and other internet sales tax measures, believing they would even the playing field between online and offline retailers. In Colorado, Barnes & Noble has reached out to displaced Amazon affiliates.
The future of internet sales tax is uncertain. Most eyes have focused on New York and the revival of Amazon’s case against the state’s law. The fate of New York’s affiliate tax law will likely determine the fate of other such laws across the country.
As the situation develops, this blog will continue to cover it.
For more information on internet sales tax, use tax, or other tax issues, contact the Chicago Tax Lawyers at Horowitz & Weinstein.