Alert: NY May Require eTailers to Collect Sales Tax

If you run an online business and sell via New York-based affiliates to customers in New York, you may be affected by a new law that is scheduled to go into effect on June 1, 2008. The law, recently signed by Governor David Paterson, holds Internet retailers accountable for collecting state sales tax on items sold to New Yorkers if the retailer maintains an affiliate presence in the state.

New York has long required companies that maintain a presence in New York to collect state sales tax. But the new law is unusual in that it defines "company presence" so broadly as to include individuals in New York who display links to Internet retail companies on their websites. By that definition, a company like Amazon.com, which has hundreds of thousands of sites featuring Amazon.com links, would be responsible for collecting sales tax on all goods delivered to New York.

The new law produced an immediate reaction. Some Internet retailers provided notice to New York affiliates that their contracts would be terminated. Amazon.com filed a suit to challenge the law, claiming that site links are more akin to advertisements than an affiliate relationship. Businesses that may be affected by the law should watch developments closely and consult with an attorney or tax advisor for additional clarification.