The "Amazon Tax" Begins Tomorrow

On Sunday, June 1st, the so-called "Amazon Tax" will go into effect in New York state. While formerly only retailers with brick-and-mortar stores in a state were required to collect sales tax, New York has enacted a law which forces etailers to collect tax on sales, if they have affiliates which redirect traffic to their sites (e.g., affiliates).

Starting June 1, Amazon (AMZN, Fortune 500) will charge a sales tax to shoppers who live in New York, even though the retailer maintains no physical operations in the Empire State.

Why the crackdown? With the economy in the tank, the State of New York was getting desperate to fill its budget gap. So it expanded its rules about what constitutes a business presence in the state. Amazon lets other sites earn commissions by linking to products on its pages as part of a program called Amazon Associates. And because some of those sites are based in New York, the state considers the Seattle-based retailer fair game.

Amazon, for its part, has filed suit in the New York Supreme Court arguing the law is unconstitutional. The company says these third-party sites shouldn't be counted as agents of Amazon in New York because they're totally independent from the retailer. Instead, they act merely as advertisers who are compensated with commissions. Also in its complaint, Amazon points out there are hundreds of thousands of associates in the program, and the company can't always determine whether these sites are actually run by New Yorkers.

Some online shoppers in New York may be howling over this new law but technically they shouldn't feel a difference. In truth, all purchases on Amazon have always been subject to taxes. Until now, only four states required Amazon itself to collect the tax: Washington (where Amazon's HQ is), North Dakota (the site of customer relations operations), Kentucky and Kansas (those last two contain large Amazon distribution centers). In other states, shoppers are supposed to keep track of their untaxed out-of-state purchases and report them in their state income tax returns every year. Needless to say, this doesn't always happen.

You can bet if this is successful (meaning's lawsuit fails) other states will jump on this.  One question to our readers: how many of you paid your sales tax on your state income tax returns last year?
Tags:  Amazon, Tax, Morro, Tom, AMA, AM