Newegg.com Stops Collecting NY State Sales Tax

You'll probably remember the portent of things to come: New York State's new sales tax on Internet retailers, which went into effect in June. Both Amazon.com and Overstock.com have sued over the tax, in fact, which was written so as to apply "physical presence" to retailers who had affiliates (generally, web sites advertising for the retailer) based in New York. Formerly, only retailers which an actual brick-and-mortar presence in a state were required to collect sales tax.

New York legislators went so far as to nickname the new tax the "Amazon tax."

The announcement was made to Newegg customers residing in New York in an email on Friday. The email said:

Dear Valued Newegg Customer,

As a result of recent changes in New York State tax law requiring certain out-of-state retailers to collect and remit sales taxes to the State of New York, we began collecting applicable sales tax for all orders shipped to New York addresses starting June 1, 2008.

After careful review and consideration, we are pleased to inform you that we have stopped collecting New York sales tax, effective August 21, 2008. This decision was driven by your direct and candid feedback and our continued commitment to you as our valued customers. We appreciate your patience as we worked through this process, and would like to reiterate our commitment in offering our customers the broadest product selection, competitive pricing, fastest shipping, and award-winning customer service.

We look forward to continuing to provide you with the premier online shopping experience for all of your IT and consumer electronics needs.

Sincerely,

Bernard Luthi
Newegg.com Company Spokesperson and
Vice President of Merchandising

Disclaimer: While Newegg no longer charges sales tax to its New York customers effective August 21, 2008, you may still have an obligation to pay New York State use tax on your purchases. Newegg cannot offer you any tax advice, so please refer to applicable law if you have any questions about use tax. Nothing in this email shall be deemed to approve the validity of any New York State law, including but not limited to section 1101(b)(8)(vi) of the New York State Tax Law, which purports to require Newegg to collect and remit New York State sales tax on its sales to residents of that state.

What's that disclaimer mean? Well, for those of us in states with sales tax, it's a line item on our tax returns (use tax), which you are supposed to fill in with the amount of sales tax you would have paid had you bought certain out-of-state items in your state. And, of course, we a) all take the time to keep track of that, b) all pay it.

In a 1992 Supreme Court decision, Quill vs. North Dakota, the Supreme Court ruled that out-of-state retailers cannot be required to collect sales tax on purchases sent to states where they did not have a physical presence.

The Supreme Court’s reasoning was at least partially based on the fact that, at the time the case was decided in 1992, there were over 6,000 separate sales and use tax jurisdictions in the United States (states, localities, special tax districts, etc.) and to impose a collection obligation on a remote seller would impose a crushing burden that would severely restrict interstate commerce.