Earlier this month, the Supreme Court declined to hear a case arising from a New York law passed in 2009 intended to allow that state to collect sales tax on online purchases by New York residents. Although the current debate focuses mostly on online sales tax, the issue stretches back to the early 1990s. Back then the focus was on catalog purchases but the same questions were in play.
The key legal issue in these cases is nexus, a term which means all the links between a particular entity (a company, for example) and a jurisdiction (say, the state of New York). If nexus passes a certain threshold, that company is deemed to be doing business in that state and must charge sales tax on purchases made by that state’s residents.
The nexus gold standard, set in a 1992 Supreme Court decision, is a physical, brick and mortar presence in the state. When it comes to retailers without a physical presence in a state, however, things get fuzzier.
The New York law proposed to broaden the definition of nexus to include affiliate agreements a company had with New York residents. So if Amazon, for example, had affiliate agreements with bloggers in New York, that would create sufficient nexus for Amazon to have to collect sales tax from purchases made by New York residents.
The Supreme Court decision this month means the earlier decision of the New York Appellate Court, which upheld the law, will stand. Interestingly, a similar law passed in Illinois was overturned by its Supreme Court. Several other states have passed similar laws or made or other attempts to increase their ability to tax online retailers. Some in Congress, such as Illinois senator Dick Durbin, have proposed national efforts to allow all states to collect sales tax from out of state retailers (online or otherwise).
For more on sales tax, use tax, or other tax law concerns, you are welcome to contact Horowitz Law Offices at 312-787-5533 or firstname.lastname@example.org