Overstock.com Sues New York Over "Amazon Tax"

With the so-called "Amazon Tax" taking effect in New York state on Sunday, Overstock.com filed suit Friday against New York, joining Amazon.com, which filed a similar lawsuit in early May.

Overstock.com, which is based only in Utah, has no operations in New York, and sells exclusively through the internet, views the new law as unconstitutional under both New York and federal constitutional provisions, including due process clauses under both constitutions and the commerce clause of the U.S. Constitution as well. The complaint filed in the New York Supreme Court calls upon the court to issue an injunction and to declare the law unconstitutional. It names as defendants in the suit the New York State Department of Taxation and Finance, and Tax Commissioner Robert L Menga and Governor Paterson in their official capacities as state officers.

On May 15, 2008, Overstock.com announced it had notified more than 3,400 New York-based affiliate advertisers that as of June 1, 2008 they could no longer provide advertising for Overstock.com owing to the application of this law. If it had not taken the action, on June 1, the controversial new law would have required the company to collect an up to 8.75% sales tax on all its sales to New York customers. If the company's legal challenge succeeds, the company anticipates it will return to state's internet advertising affiliates.

"We love New York," said Patrick Byrne, Overstock.com chairman and chief executive officer. "But, we had to choose our New York customers over the New York tax collector armed with an unconstitutional statute."

"I am confident of our position in the suit," said Mark Griffin, Overstock.com general counsel. "The applicable United States Supreme Court cases on the question of whether the state can collect taxes under these circumstances make it clear that New York cannot constitutionally require Overstock.com to collect these taxes."

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. New York's law tries to get around this with the "affiliate" angle.