Judge Dismisses Amazon Suit Over NY Sales Tax

Amazon loses a New York court case that has been ongoing for around nine months


New York State Supreme Court Justice Eileen Bransten tossed out Amazon.com's lawsuit challenging the state of New York's right to collect tax from out of state transactions through the retailer. Amazon reportedly failed to state a proper claim and "there is no basis upon which Amazon can prevail," according to Judge Bransten.

Amazon first filed a complaint in April, claiming the law was unconstitutional and too broad and vague.

The law comes into effect if a company doesn't have an office in New York, but has one or more workers who serve as online agents in New York. For example, New York residents didn't need to pay taxes on products sold because Amazon doesn't have official operations there -- Washington state shoppers, however, must pay taxes, as the state has a headquarters and warehouses there.

State officials widened how "presence" could be described, as Amazon said advertisers aren't classified as official agents for Amazon.com. The company hoped to have the law changed and have the state pay for all legal costs.

The popular online retailer also has an Associates Program that helps unaffiliated web site operators get paid when advertising Amazon on their own web sites. New York law indicates this eventually ends up being solicitation of business while operating in New York.

New York state officials said the new "Amazon tax" closes a "tax loophole" that should have never existed in the first place. Furthermore, the judge said the New York law was "carefully crafted" and didn't offer a blanket tax on all Internet sales, and didn't unfairly target Amazon.

Even though the lawsuit has been thrown out by lawmakers, Amazon can still appeal the decision.

Amazon spokespeople said the new law unfairly targets Amazon, and the state could generate as much as $50 million through 2011 from the tax. Taxing goods sold both in-state and shipped in could offer the state a new revenue stream to make up for the state's monetary struggles.

However, booksellers in the state are happy to see Amazon finally get taxed.

"The state of New York was subsidizing sales on Amazon to the degree of 8 percent," American Booksellers Association Oren Teicher chief operating officer told the Associated Press. "That was unfair. The government ought not ever be in business of picking favorites among competing businesses."

New York recently unveiled a new entertainment tax that would tax all songs through Apple iTunes, as the state's government faces a massive $15.4 billion deficit

New York recently unveiled a new entertainment tax that would tax all songs through Apple iTunes, as the state's government faces a massive $15.4 billion deficit

California warns companies they may owe use tax
State Board of Equalization sends letters advising service companies to check out-of-state purchases for the last three years or risk an audit.
By Marc Lifsher
December 29, 2008
Reporting from Sacramento -- Over the last six months, California tax officials have quietly mailed thousands of official letters to doctors, beauty salons, insurance agents and other service providers looking for some badly needed state tax revenue.

The letters asked these service businesses to check records on their out-of-state purchases for the last three years and pay any back taxes they owe. Failure to do so could lead to an audit of the taxpayer's books going back eight years, the letter warned.

Californians know all too well about sales taxes they pay almost every day on purchases. But less known is the "use tax" that the state requires consumers to pay on goods bought out of state.

California consumers, both individuals and businesses, must pay a use tax if they buy something in another state and if the seller does not collect a sales tax on the purchase. The use tax -- the same amount as the sales tax -- ranges from 7.25% to 9.25% depending on where the buyer lives.

For example, someone who buys books, records, an expensive camera or furniture from Internet retailer Amazon.com would be required to send the state a check covering the specific use-tax obligation. If that's too much trouble, the buyer instead is expected to keep a record of out-of-state purchases and report a year's worth of use-tax obligations on a designated line on the state income tax form.

Compliance with the use-tax obligation is spotty at best, say officials at the California Board of Equalization, the agency charged with collecting sales and use taxes, among others.

To critics of the use tax, the state's new letters on official letterhead are heavy-handed. But supporters say it's a matter of tax fairness.

There's nothing "scary" about the letters, other than they come from a government tax agency, said Board of Equalization Chairwoman Betty Yee. "Much as it feels like a fishing expedition, it is the law. Honestly, a lot of these businesses may not be aware of what the law is" and that it's been on the books since 1935.

Maximizing revenue from existing taxes is crucial at a time when the state government faces a projected $41-billion budget gap over the next 18 months, officials say.

California, 44 other states and the District of Columbia are eager to collect taxes on out-of-state purchases. But it's highly complicated. Out-of-state businesses must collect sales tax if they have stores, warehouses or any physical presence in the taxing state.

If not, the California buyers are supposed to pay use taxes instead. But many local businesses and individuals ignore it.

Enforcing the use-tax law has proved to be time-consuming and costly. Appeals from taxpayers involving out-of-state sales of big-ticket items, such as airplanes and magnetic resonance imaging machines used in medical diagnoses, have led to complex legal wrangling that has been difficult to resolve.

That's why California tax authorities now are focusing their efforts on a more manageable target: service businesses.

The board's collection effort is part of a so-called tax gap program aimed at collecting an estimated $1.1 billion in unpaid use taxes, based on U.S. census and other data.

Businesses owe about $682 million and individuals, $409 million, the state says. The average business owes $340 in back taxes and households owe $436, the Board of Equalization says.

Board of Equalization officials say the stepped-up collection program primarily is an "educational" campaign.

Six thousand letters have been sent since July, netting $2.6 million in back-tax payments, and 25,000 letters are expected to go out in the fiscal year that ends June 30.

Collecting the tax, officials say, is a matter of fairness to ensure that businesses pay required taxes whether the goods come from inside or outside California. But recipients of the state letters don't necessarily see it that way.

"This isn't education. This is punitive," said a San Francisco businessman who received the letter and asked that he not be identified for fear of closer scrutiny by tax authorities.

Small-business owners should be aware that they have a legal obligation to pay use taxes on future out-of-state purchases, such as computer equipment or office supplies, he said. But they should not be forced to go through years' worth of old receipts to calculate back taxes that are filed under the threat of being punished for perjury or fraud.

The letter on state of California stationery, complete with a case reference number, has a tone that could be considered intimidating by a small-business owner.

"Industry studies indicate there is a likelihood that your business has purchased fixtures, equipment, machinery, furnishings, consumable supplies or other items from retailers outside California for use in California," reads one communication to a San Francisco company dated Dec. 11.

After reminding recipients that the state has the right to audit their business activities for as many as eight years, the letter instructs them to "review your records and self report" untaxed purchases from the last three years.

It asks that all taxes, penalties and interest charges be paid to the state within one month of getting the letter.

Small-business groups welcome the information but don't like the way the board is trying to "frighten" them.

"This is a classic example of government efforts to shock-and-awe small-business owners," said John Kabateck, executive director for California of the National Federation of Independent Business, which has 23,000 members in the state.

But liberal-leaning tax and budget watchdog groups applaud the Board of Equalization's new aggressiveness in trying to collect use taxes.

"There's a ton of avoidance that needs to be addressed," said Lenny Goldberg, executive director of the California Tax Reform Assn., a union-backed group that advocates for a strong public sector and tax fairness.

"This is a tax that is due and payable," he said. "It's a question of doing it in a way that maximizes the opportunity to collect some real revenue in a way that doesn't feel oppressive to the taxpayer."

Judge Dismisses Amazon Suit Over NY Sales Tax

New York recently unveiled a new entertainment tax that would tax all songs through Apple iTunes, as the state's government faces a massive $15.4 billion deficit

Budget shortfalls do NOT justify new taxes and/or revenue streams.

The popular online retailer also has an Associates Program that helps unaffiliated web site operators get paid when advertising Amazon on their own web sites. New York law indicates this eventually ends up being solicitation of business while operating in New York.

...the state passed a new law, as part of its state budget, that expanded the meaning of "solicit" to include any company that pays New York-based entities for "directly or indirectly referring customers" to its retail business...

Also, there are many, many different local sales tax rates here... how to divy it up?