The State of New York enacted a statute requiring Amazon.com to collect NY sales taxes on orders going to New York State residents. Technically, all Internet sales have long been subject to sales tax; the NY consumer was supposed to report such purchases and pay tax on them. You can imagine how little tax was collected by relying on consumers to drop a dime on themselves on their yearly tax returns. So New York decided to make it Amazon's problem to keep track of and collect taxes from New York residents. How did they turn Amazon into a New York retailer overnight?
Generally, only those companies that have a physical presence — like an office or store — in the state where the purchase is made are required to collect the tax.
The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates — from big publishers to tiny blogs — that feature links to its products. The state law says that thousands of those have given an address in New York State, although the addresses have not been verified.
The law says that if even one of those affiliates is in New York State, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate. This is an extension of an existing rule that companies employing independent agents or representatives to solicit business must collect taxes for the state.
Amazon’s suit challenges the constitutionality of this interpretation and seeks a declaratory judgment that it is invalid.
Amazon says the statute is unconstitutional since it singled out Amazon to collect the tax. They have a point. The New York legislators that passed the law called it the "Amazon Tax." Now they get to go in front of a New York judge in a New York courtroom where everybody's salary is paid with New York tax money and explain why they don't want to collect New York tax.
Good luck with that.