An interesting bit of info hit my Inbox this afternoon via Web Pro News. New York has declared war on e-commerce, and Amazon is hitting back

Amazon.com is suing the New York State Department of Taxation and Finance (DTF) over a new state law that requires Internet retailers to collect sales tax on purchases shipped to state residents.

Amazon has argued that since it does not have a physical presence in the state that it should not be required to collect taxes on shipments going to New York. “Amazon has no physical presence in New York,” according to the suit. “It does not own, lease, or otherwise occupy any physical property in the state, and none of its employees works or resides in the state.”

In addition Amazon says the New York law is unconstitutional based on a 1992 U.S. Supreme Court ruling that claims states are prohibited from requiring out of state retailers to collect sales tax unless the company has a physical presence in the state.

In the Quill v. North Dakota case, the Supreme Court re-established the rule that a state could not impose sales tax collection on a business unless the company had employees or property in the state.

New York defends the law by arguing that the Amazon Associates program, which allows Web site publishers to receive commissions by promoting Amazon items through their sites make Amazon liable to collect taxes on its behalf for those affiliates who live in New York.

I’d think that if New York could legally screw anyone, it would be the Amazon affiliates. That, however, is too difficult a task. The affiliates are hard to track, and most make supplemental income at best (or typically, not even that). The commerce clause be damned, then. That’s not where the deep pockets are.

Amazon is likely to prevail, but not before the grace period for registration passes, leaving them (potentially) on the hook for back due taxes and penalties if they do in fact end up losing the fight. These kinds of attempts at taxation are akin to imposing tariffs between and among the states. One of the central and most overlooked reasons the United States has been such a successful country is that the fifty states are the largest free-trade zone in history. Regional comparative advantage, the free flow of capital and the unrestrained flow of labor is built-in to the domestic American economy on an unparalleled scale.

New York is hurting the rest of us by doing this. The Department of Justice should step in and put the impetuous Empire State in her place.

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