Problems with Affiliate Nexus

The article Affiliate nexus litigation: Everyone loses by Annet Nellen points out some of the glaring problems with affiliate nexus laws. Some of these include:

  • Litigation Costs– Amazon and Overstock have proven time and time again that they are willing to litigate these laws.
  • Loss of income tax revenue– Amazon and Overstock have decided to sever their ties with affiliates in state with these types of laws, reducing the amount of income that the states can tax.
  • Problem still remains–After a relationship with a 3rd party affiliate is severed, a company is no longer liable to collect sales tax.
  • No solution reached–There are two conflicting cases on affiliate nexus (New York, and Indiana), and the Supreme Court has been unwilling hear the case. The only real hope for a solution seems to lie with Congress.

Supreme Court Declines to Hear Online Sales Tax Case

The Supreme Court of the United States has declined to hear a case involving online sales tax in New York, thus letting the New York statute stand.

The Statute requires that companies like Overstock and Amazon have to collect and remit sales tax in the state even if they do not have facilities or a direct physical presence in the state. The statute operates on the basis that companies have a physical presence simply by having contracts with  3rd party affiliates within that state.

Amazon and Overstock won a similar case in Indiana back in October, meaning that there are currently two conflicting rulings on the matter.

Friend of the court brief filed regarding New York’s Internet Sales Tax Law.

On September 23rd the Tax Foundation and the National Taxpayer’s Union filed a friend-of-the-court brief imploring the U.S. Supreme Court to hear an appeal regarding New York’s internet sales tax law.

The law attempts to skirt around the constitutional requirement that a state can only impose sales tax collection if the taxpayer has a physical presence in that state. It accomplishes this by claiming that an out-of-state taxpayer has a presence if they have an in-state affiliate that solicits sales in New York. This could apply to any company that simply advertises in New York.

The brief claims that the law gives New York and overextended taxing authority from what is constitutionally permissible.

To read the brief visit:

Colorado’s Amazon Win

In 2010 Colorado passed a law requiring internet retailers, whose gross sales exceeded $100,000, to mail annual use tax owed notices to customers that bought over $500 worth of merchandise.

Last year a lower court threw the statute out, claiming that it placed an “undue burden on interstate commerce.”

Yesterday the U.S. Court of Appeals for the 10th Circuit remanded the case back to the lower court, claiming that it had overstepped its authority, and that it had to lift the permanent injunction on the tax. The reason cited was the U.S. Tax Injunction Act, which prevents federal courts from taking on state tax disputes when a state court could handle the matter. It also prohibits Federal lawsuits that could restrain the collection of state taxes.

The suit was brought by the Direct Marketing Association (DMA); a trade association based out of New York.

If the lower court reverses the injunction, then the Amazon act will be back in effect; however the DMA could still try to get an injunction in state court.

Read more:

No Taxes, No Driving!

New York is considering legislation that would allow the state to suspend drivers license to those who are delinquent on their taxes. It’s estimated that the initiative would raise revenue by $26 million in the first year and $6 million every year after.

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