New York's Battle Over eCommerce Sales Tax

Rosanna DiFilippo
July 30, 2008 — 1,492 views  
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The world of e-commerce sales tax has been active of late, complete with high profile legislation that could in the end impact the way sales tax is applied to online retailers across the country. Well, the situation continues to evolve. On May 8, 2008, The New York Department of Taxation and Finance issued TSB-M-08(3)S, which further explains the legislation enacted effective April 23, 2008, which provides a presumption that certain sellers of taxable tangible personal property or services are sales tax vendors and are required to register and collect sales tax.

The new law amends the definition of vendor and provides that a seller is presumed to be a vendor if the seller enters into agreements with New York residents to refer customers to the seller. Specifically, a vendor includes persons who solicit business within New York through employees, independent contractors, agents or other representatives and as a result of, makes sales of tangible personal property or services to New York residents, which are taxable.

A New York State resident for sales tax purposes includes any individual who maintains a permanent place of abode in New York State; any corporation incorporated in New York; and any corporation, association, partnership, or other entity doing business or maintaining a place of business in New York State.

The Department explained that a seller of tangible personal property or services is presumed to be a vendor when two conditions are met. First, the seller enters into an agreement with a New York resident and for a commission or other consideration, the resident representative directly or indirectly refers customers to the seller, whether by link on a web site or by some other means. Second, the cumulative gross receipts from sales to New York customers as a result of referrals by all of the seller’s resident representatives total more than $10,000 during the preceding four quarterly sales tax periods.

An agreement to place an advertisement does not give rise to the presumption. As such, placing an advertisement does not include the placement of a link on a web site that links to the seller’s web site, where consideration for placing the link is based on the volume of sales generated by the link.

A limited amnesty is provided for specified businesses that come forward and register as sales tax vendors. Specifically, the Department is precluded from assessing tax, penalties, and interest against businesses for failure to collect sales tax from their customers for periods beginning prior to June 1, 2008, if the businesses are covered by the presumption and meet certain other conditions, including that they register as sales tax vendors and commence collection of sales taxes by June 1, 2008.

The new law changes are thought to target companies like and other online retailers outside of New York that pay New York advertisers commissions for sales generated from advertisements that link to online retailer’s web sites. In response, filed a complaint in the New York Supreme Court, challenging the constitutionality of the statutory provision that requires out of state online retailers with no physical presence in New York to collect New York sales and use taxes on purchases made by New York residents. (, LLC v. New York Department of Taxation and Finance, New York Supreme Court, New York County, No. 08601247, complaint filed April 25, 2008)

In its complaint, Amazon alleges that because New York-based web sites post advertisements with links to and are compensated for these advertisements, Amazon will now be required to collect New York sales and use taxes on all of its sales to New York residents, despite the fact that it lacks any physical presence in New York and that no solicitation by it actually exists.

On May 30, 2008, announced that it too filed a lawsuit challenging New York’s new law that requires out-of-state online retailers to collect New York sales tax on sales to New York consumers even if the retailer does not have a physical presence in New York., which follows in challenging the law, said it is asking the court for an injunction and to declare the law unconstitutional. The lawsuit follows’s May 15, 2008 decision to sever ties with its New York affiliate advertisers.

Rosanna DiFilippo


Ms. DiFilippo provides MFA's publicly-held and private clients with winning solutions to their increasingly complex business issues. Rosanna delivers tax compliance and consulting services to a broad range of multi-state entity types, such as corporations, partnerships and limited liability companies. She is experienced in a wide variety of industries including manufacturing, software development, high-tech, biotechnology, pharmaceuticals, wholesale/distribution, retail and service.