State & Local Tax Blog

NY Decides to Go After Amazon, But Did Hillary Intervene on This Too?

You know the New York State Department of Taxation and Finance and every other revenue department across the country would like to get their hands on Amazon.com. Well NY came up with an approach to do just that. Apparently it was at the behest of the Honorable Governor Elliott Spitzer.

The Department issued a Memorandum detailing its policies for out-of-state companies selling to customers in New York. A copy of the memo is included below. This was a well-thought out memo with a number of examples. It was obviously targeting companies like Amazon. So how does Amazon have nexus in NY you ask? Well, here comes the novel idea. NY said that Amazon had nexus because of all the agents operating in the state. Did they mean subcontractors or even agreements with Brick and Mortar stores to take returns or advertise for Amazon? No. But Amazon did have a “affiliate” program.

Almost every online seller has these programs whereby on website can post a link to the host website advertising, say a book for sale. If the visitor to the “agent” website clicks on that link to the host website and actually buys the book, then the agent website earns a small commission. NY said this created nexus for Amazon. That is a scary concept right there.

What this means of course is New Yorkers were going to have to pay tax on items purchased from outlets like Amazon. But what it really means in this political environment is it makes Hillary look like all she wants to do is tax people. So my theory is Hillary’s people talked to Spitzer’s people and said, “hey, are you secretly working for Obama or what?” Whether that actually happened is anyone’s guess, but it’s certainly not without precedent. Remember the driver’s licenses. See this article in the NY Sun for more on this angle. And I quote: “In a second major policy reversal in less than a day, Governor Spitzer is backing down from a plan to require Amazon.com and other online retailers to charge state and local sales taxes on all purchases from New York…The turnabout came just hours after Mr. Spitzer said he was dropping his plan to allow illegal immigrants in New York to obtain driver’s licenses.”

But the bigger issue for state tax watchers is this new frontier blazing by New York. So they want to take the position that a link on someone else’s website, who has no relationship to your company whatever, means they are your agent. This agency relationship gives the state the right to force you to collect their sales tax. Yikes.

Here’s the original Memorandum (see the bottom of this post for a copy of the retraction) :

ADMN-RUL, STATE-ARD, ¶405-893, Technical Services Bureau, Taxpayer Services Division, New York Department of Taxation and Finance, NY –TSB-M-07(6)S, Sales and Use (Nov. 09, 2007)Technical Services Bureau, Taxpayer Services Division, New York Department of Taxation and Finance, NY –TSB-M-07(6)SW A Harriman Campus, Albany NY 12227 www.nystax.govNew York State Department of Taxation and FinanceOffice of Tax Policy Analysis Taxpayer Guidance DivisionTSB-M-07(6)SSales TaxNovember 9, 2007Requirement to Register as a Sales Tax Vendor for Out-of-State Companies Soliciting Sales Through Representatives
This memorandum explains the Tax Department’s policy regarding the requirement of certain businesses that make taxable sales of tangible personal property or services to register as vendors for New York State sales tax purposes, and to collect New York State and local sales taxes. Specifically, this memorandum explains the application of the sales tax law and regulations to e-commerce retailers who use independent contractors, agents, or other representatives (representatives) within New York State to solicit sales or to make or maintain a market for their products or services.
E-commerce retailers may use persons who act as representatives to solicit sales or to make or maintain a market in return for commissions, referral fees or other types of compensation. The agreement between the e-commerce retailer and its representative usually takes the form of the e-commerce retailer agreeing to pay compensation to the representative for sales that can be directly attributed to the solicitation activities of the representative.
For example, the representative may be a private club that agrees to actively refer its members and to solicit other persons to purchase products from the e-commerce retailer’s Web site by providing a specialized link from the club’s Web site to the e-commerce retailer’s Web site. Alternatively, the club may refer persons directly to the e-commerce retailer’s Web site with instructions to enter a code number or other information that will identify to the e-commerce retailer that the club is responsible for the referral. The sales that result from these activities can be tracked and a commission or other compensation is paid to the club based on the amount of resulting sales.
Under the New York State Tax Law and the Sales and Use Tax Regulations, the term vendor includes persons who solicit business within the State through employees, independent contractors, agents or other representatives and, by reason thereof, make sales to persons within the state of tangible personal property or services that are subject to sales tax. Accordingly, if a business located outside New York State solicits sales of taxable tangible personal property or services through employees, salespersons, independent agents, or representatives located in New York State, the business must register as a vendor and obtain a Certificate of Authority for New York State sales tax purposes. (Tax Law Section 1101(b)(8) and Sales and Use Tax Regulation Section 526.10(a)(3)).
As illustrated by the examples below, the physical presence in New York State of a representative of an e-commerce retailer soliciting sales or making or maintaining a market in New York on behalf of the e-commerce retailer, for commissions, referral fees or other compensation, is sufficient to require that retailer to register as a sales tax vendor. (See Tax Law Sections 1101(b)(8), 1131(1), 1134(a), Sales and Use Tax Regulations Section 526.10 and Scripto Inc. v. Carson (362 U.S. 207)). As a registered vendor, the e-commerce retailer must collect New York State and local sales taxes on all of its sales of taxable products and services that are delivered within New York State, and must file the appropriate sales tax returns. However, a person is not considered a vendor merely because the person has advertising disseminated or displayed on the Internet. (See Tax Law Section 12 and TSB-M-97(1.1)S).
A business may apply for a Certificate of Authority by using the New York State Online Permit Assistance and Licensing link at Web site www.nys-permits.org, or by completing Form DTF-17, Application To Register For a Sales Tax Certificate of Authority, and mailing it to the Tax Department to the address specified on the form. (See Tax Law Sections 1131(1) and 1134).Example 1:
XYZ Company (XYZ) is an Internet-based retailer of sporting goods specializing in downhill skiing equipment. XYZ is located in Vermont, where it has its administrative offices and its warehouse, which holds its inventory for sale. XYZ makes sales of its merchandise throughout the United States and has customers in New York State. The merchandise sold by XYZ is delivered by the U.S. Postal Service or by common carrier, such as United Parcel Service or Federal Express.
As part of its marketing plan, XYZ has entered into an agreement with Downhill Ski Club (Ski Club), which is based in Saratoga Springs, New York, whereby Ski Club will maintain links to various skiing equipment listed for sale on XYZ’s retail Web site on the Club’s own Web site. XYZ will pay a commission to Ski Club based on the amount of sales that XYZ makes that originate from the links on Ski Club’s Web site. Ski Club uses the commissions as a fundraising activity to partially offset the expenses for the ski trips it sponsors. To maximize its commissions, Ski Club actively solicits its members and the local community to purchase new skiing equipment through the Ski Club’s Web site by clicking on the link to XYZ’s retail Web site and making their purchases from XYZ.
XYZ may have similar arrangements with other representatives in New York, but otherwise has no other additional connection with New York State that would cause XYZ to register as a New York State sales tax vendor. Based on its agreement with Ski Club, XYZ is considered to be soliciting business in New York through Ski Club, which is acting as an independent contractor, agent or other representative of XYZ, and making sales of taxable tangible personal property to persons within New York State. Therefore, XYZ must register as a New York sales tax vendor, collect New York State and local sales taxes, and file the required sales tax returns.Example 2:
This example follows the same facts as in Example 1 except that Ski Club does not have its own Web site. Therefore, Ski Club solicits sales of XYZ’s merchandise by directing its members and the local community to XYZ’s Web site with instructions to enter a specific code number when making their purchase. By entering the code number, Ski Club is identified by XYZ as the organization responsible for referring the purchaser to the Web site, and a commission is paid to Ski Club by XYZ based on the resulting sales.
XYZ is considered to be soliciting business in New York through Ski Club, which is acting as an independent contractor, agent or other representative of XYZ, and making sales of taxable tangible personal property to persons within New York State. Therefore, XYZ must register as a New York sales tax vendor, collect New York State and local sales taxes, and file the required sales tax returns.Example 3:
John Smith is the author of a guide book to kayaking on New York lakes and rivers. The book is listed for sale on an e-commerce retail Web site. Mr. Smith maintains a Web site that contains a variety of information on kayaking and also contains a link to the e-commerce retail Web site through which visitors to his site may purchase his book. For each visitor that follows this link and purchases his book from the e-commerce retail Web site, Mr. Smith is entitled to receive compensation from the e-commerce retailer. Mr. Smith regularly speaks on the subject of kayaking at forums within the State. In the interest of earning commissions from the ecommerce retailer, he actively markets his book at these events by referring attendees to his Web site, where potential purchasers can click on the link to the e-commerce retailer’s Web site and purchase his book.
Based on this arrangement, the e-commerce retailer is considered to be soliciting business through Mr. Smith, who is acting as an independent contractor, agent or other representative of the e-commerce retailer, and making sales of taxable tangible personal property to persons within New York State. Therefore, the e-commerce retailer must register as a New York sales tax vendor, collect the New York State and local sales taxes, and file the required sales tax returns.
This memorandum is intended to clarify current policy and does not reflect any change in requirements for vendors doing business in New York State. If an out-of-state business should have been registered based solely on the information contained within this memorandum, but was not registered, the department will not assess any prior sales taxes due or any civil or criminal penalties or interest for the failure to collect and remit any prior sales tax due, if the business registers and begins collecting sales tax by December 7, 2007.
For further information on what tangible personal property and services are subject to tax and how to register for New York State sales tax purposes, see Publication 750, A Guide to Sales Tax in New York State that is available through the department Web site at www.nystax.gov, or by contacting our Sales Tax Information Center at 800-698-2909.
NOTE: A TSB-M is an informational statement of changes and clarification of the law, regulations, or department policies. It is accurate on the date issued. Subsequent changes in the law or regulations, judicial decisions, Tax Appeals Tribunal decisions, or changes in department policies could affect the validity of the information presented in a TSB-M.

And here’s the retraction:

Office of Tax Policy Analysis
Taxpayer Guidance Division
TSB-M-07(6.1)S
Sales Tax
November 15, 2007
Notice of Withdrawal of TSB-M-07(6)S
TSB-M-07(6)S, Requirement to Register as a Sales Tax Vendor for Out-of-State
Companies Soliciting Sales Through Representatives, has been withdrawn.

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