January 13, 2009, 12:00 AM

New York judge dismisses Amazon and Overstock sales tax suits

A New York judge has dismissed lawsuits by Amazon.com and Overstock.com challenging a new law allowing New York to collect sales taxes from web retailers with no physical presence in the state. Overstock.com immediately announced plans to appeal.

Katie Evans

Managing Editor, International Research

Even Amazon.com is not exempt from the tax man, at least not in New York.

A New York judge this week dismissed two lawsuits-one from Amazon.com Inc. and one from Overstock.com Inc.- disputing a recent tax law allowing New York to collect sales taxes from web retailers with no physical presence in the state. Overstock.com immediately announced plans to appeal.

New York state supreme court Justice Eileen Bransten said in a statement obtained by Internet Retailer that, “Amazon’s complaint must be dismissed in its entirety for failure to state a cause of action. Even accepting all the facts alleged to be true, there is no basis upon which Amazon can prevail.” Rejecting Overstock’s lawsuit, Bransten said, “There are no allegations in Overstock’s complaint that make it materially different from Amazon’s.”

The New York tax law, which went into effect June 1, requires online retailers with New York-based affiliates to collect sales taxes on New York customers. Affiliate web sites host links to e-retailer’s web sites and receive commissions on purchases stemming from consumers clicking on those links. For example, a New York-based ski club might host a link to the ski selection on Amazon.com and collect a small fee from each purchase.

The law says an e-retailer who collects $10,000 or more in sales annually through New York-based affiliate web sites has a physical presence in the state and must collect and remit sales taxes to the state. The New York state sales tax is about 9.5%, but can vary by county.

Overstock.com issued a statement today saying it plans to appeal the ruling. "We don`t believe the New York court correctly applied the law, and we must now move this challenge to the next phase," says Jonathan E. Johnson, president of Overstock.com. Johnson says the company was disappointed but not surprised by the trial court ruling, and added, "It now seems to be a question best answered by the New York Court of Appeals, or, if necessary, the United States Supreme Court. Confident of a ruling in our favor, that`s exactly where we are going next." Before the New York law took effect June 1, Overstock.com cut ties with 3,400 New York-based affiliates.


An Amazon spokeswoman said the retailer, No. 1 in the Internet Retailer Top 500 Guide had no comment.


Amazon filed its lawsuit in April and Overstock followed with a similar filing in May.


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