Online giant Amazon.com is suing the state of New York to block a new tax law that requires internet retailers to collect sales taxes.
The law applies to out-of-state companies that have a physical presence in the state. It was enacted as part of the 2008-2009 state budget. State officials estimate that they will receive $50 million in taxes from the bill this year.
Owners of independent bookstores have been strong supporters of the new tax law, noting that it levels the playing field between them and Amazon.com.
However, attorneys for Amazon.com say that they are suing New York because the new tax law is unconstitutional in that it intentionally targets Amazon.com. They also have some questions about whether the law should even apply to them.
Interestingly, Amazon.com does not have a physical presence in New York. Rather, they have an affiliate program that allows webmasters to post links that go to Amazon.com's website. If there is a sale that results from a click on those links, the webmaster gets a small commission.
New York says that because there are many Amazon.com affiliates based in New York, it's essentially the same as Amazon.com having a physical presence in New York.
The law specifically states that online retailers that have no physical presence in the state aren't required to collect sales taxes under the new law.
So, the big question is going to be whether the courts agree that having an affiliate participant living in the state is the same as being based there.