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Summary:

New York has become the first (so far as I know) state to try to close the “Amazon Loophole” in its sales tax collections. With the passage of a new state budget, they’re requiring out-of-state interstate retailers who do $10,000 or more of business per year […]

New York has become the first (so far as I know) state to try to close the “Amazon Loophole” in its sales tax collections. With the passage of a new state budget, they’re requiring out-of-state interstate retailers who do $10,000 or more of business per year with New York residents to collect and remit sales tax on those purchases. The theory is apparently that pushing out ads and making web sites available gives you a “presence” in the state sufficient to get around the historic Quill decision which made mail-order merchants exempt from such collection requirements.

Most web workers probably won’t feel the effects directly on the selling side: the bulk of us are selling services, rather than goods, and so don’t fall into a category of sales where sales tax is collected. But if your web business includes shipping anything physical, from computers to hand-knit booties, to New York, you’ll need to keep track of what happens as the State Department of Taxation and Finance issues regulations to implement the tax.More directly affected will be web workers who actually live in New York. In theory, this change doesn’t impose any new taxes on purchases: like most states, New York has a “use tax” with exactly the same rate as the sales tax, applied to out-of-state purchases brought into the state. But with the exception of big-ticket items like automobiles and boats, most states have made little or no attempt to collect use taxes, relying on an honor system where people are supposed to report their own purchases and pay the taxes once a year. Most people, frankly, don’t.

So the net effect for New Yorkers who buy things over the web will be higher prices, as e-tailers pass along the new charges to their customers. And in some cases, it will be higher prices for all of us, as the overhead costs of the new bookkeeping get absorbed into general prices. It’s likely that Amazon and other large web merchants will sue to block this law; if they don’t succeed, it’ll be time to take a second look at web ordering to figure out if the convenience is really worth the cost.

  1. When are people going to realize that if I (someone living in New York) drive to Pennsylvania, I have to pay Pennsylvania sales tax, I don’t have to pay New York sales tax because the purchase is happening outside of my state.

    So let’s say that Amazon’s servers are located in Washington, why don’t I just pay Washington sales tax? Even though I’m in New York the purchase is happening on the server, not on my computer therefore it is happening in Washington, I SHOULD have to pay Washington sales tax.

    This whole thing is completely ridiculous.

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  2. One of my former bosses was close friends with another retail manager. His friend told him about a woman who refused to pay sales tax at his store and stated it was unconstitutional. They resorted to calling the police who brought in a district attorney. The district attorney told them the woman was correct. He said most people did not know about this loophole in the law and that they had to sell her the goods and not charge her the tax. What part of the Constitution did she claim? Article 9-“No Tax or Duty shall be laid on Articles exported from any State.” What she was saying was the goods that were being sold to her had crossed state lines in transit and therefore could not be taxed. As I understand it, this is why mail order is not taxed.

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  3. I’d love to see them try to pry the money from amazon.

    I’m quite sure Amazon will give them a blunt “No.” and just continue doing this.

    They’ll attempt to pass the tax onto consumers… Who’ll probably just pay it until someone realises they don’t have to.

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  4. Ask any developer who has done shopping cart application for companies – this gets complicated fast. First there is the state sales (or use) tax, then their could be county and even municipal. Everyone wants a taste and for retailers like Amazon, it becomes one huge headache. Add to the mix that they need to tax shipping in some places and not others and it gets worse.

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  5. @ C Phillips:
    1) Common urban legend (and not even a believable one — I mean, the DA got involved? Stupid.)

    2) Sometimes the most obvious reason is the correct one: states don’t do it because enforcement would be a PITA, if it’s possible at all.

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  6. California has required residents pay “Use Tax” on out of state Internet purchases for a few years now.

    http://www.ftb.ca.gov/current/usetax.shtml

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  7. Jeff: Yes, just about every state with sales tax requires you to pay use tax on out-of-state purchases. But enforcing that on individuals is well-nigh impossible. The key difference with the New York plan is to make the internet retails responsible for collecting and remitting the tax, instead of leaving it to the conscience of individuals to report.

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  8. Thank you Michael for calling me stupid. I wouldn’t have believed it myself if I hadn’t been standing there next to the excited manager who was telling my boss the story. It’s not urban legend. Just most people don’t want to pursue it.

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  9. This is not really about New York and Amazon as other states will be watching what happens. With more than 7,500 different tax jurisdictions in 50 states, I know of no ecommerce software capable of managing this task for e-tailers. If it did exist most mom & pops could not afford it. Trying to comply with 50 different different state laws would drive most out of business.

    We would all lose out because brick and mortar won’t stock what the internet can and with the competition gone, up goes the price of what you can get locally.

    Amazon could simply decide not to sell to anyone in New York. Does that help anyone?

    They could pull the plug on affiliates with a New York address. That saves Amazon the problem of dealing with taxes but takes money out of the pockets of New York’s own residents. Is that the answer?

    This goes beyond one state and one company.

    Check: http://www.reelectnoone.com/amazon_tax.php

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  10. I went on Amazon to purchase a printer this morning and saw an included NYS tax. I tried the same thing on Buy.com which also have an included NYS tax. I refused to make the purchase!

    If I travel to several states and purchase gasoline, will NY now require that I send them taxes on the purchases?

    I will wait until the Courts haved ruled.

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