April 17, 2008, 12:00 AM

New York says web site affiliates are basis for sales tax collection

New provisions proposed for a New York State sales tax law, if signed by the governor, would require out-of-state online retailers with in-state affiliates to collect and remit sales tax on purchases by New York buyers.

New provisions proposed for a New York State sales tax law, if signed by the governor, would require out-of-state online retailers with in-state affiliates to collect and remit sales tax on purchases by New York buyers.

The provisions, which experts say could set a precedent for other cash-strapped states, were passed by the New York state legislature recently as part of a state budget bill in an effort to raise $50 million for the remainder of the state’s current fiscal year in sales tax revenue from online retailers. Gov. David Paterson is expected to sign the budget bill, making it effective June 1, according to the state budget office.

The provisions would amend a sales and use tax law on the books since 1965. That law requires New York state residents who purchase items outside of the state to pay New York a “use” or sales tax if they were not charged sales tax in the state of purchase. Following similar procedures in other states that charge sales tax, the law also requires out-of-state retailers to collect and remit sales tax on products sold to New York residents if the retailers maintain a physical presence, or nexus, in the state.

The proposed provisions to the law expand on the definition of nexus to cover New York-based web site affiliates that forward customers to an out-of-state online or catalog retailer. “The provisions cover certain Internet retailers that we believe have a physical presence in New York, and the provisions have determined that New York-based affiliates of remote online sellers qualify as a brick-and-mortar presence,” a spokesman for the state’s Department of Taxation says.

The spokesman mentioned Amazon.com Inc. as a particular target of the provisions because it’s a large retailer that doesn’t collect sales in the state like other large retailers with physical stores as well as retail e-commerce sites. A spokesman for Amazon declined to comment, noting that the retailer was still reviewing the state’s proposed changes to sales tax requirements.

New York state officials supported the change in the law regarding sales tax collection to help replace a shortfall in tax revenue caused by a tight economy, the taxation department spokesman says. The change is expected to go into effect on June 1 and raise $50 million in sales tax revenue in the remaining 10 months of the fiscal year ending March 31, 2009, and raise $73 million in the full fiscal year ending March 31, 2010, a spokesman for the state budget office says.

Retailers doing less than $10,000 a year through affiliate sales are exempt from the law, the state budget spokesman adds.

The New York action could lead to similar legislative efforts in other states pressed for finding ways to generate revenue, says Daniel Schibley, a tax analyst for CCH Inc., a Riverwoods, IL-based unit of Wolters Kluwer that publishes tax and legal software and publications. “A lot of states will look as this new idea of collecting tax on remote sales,” he says.

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