Amazon versus New York State: Appellate Court Decision

Earlier this month Davis & Gilbert LLP released a “taxation alert” on the subject of the so-called affiliate tax [more on the tax here], and particularly the case Amazon’s appeal regarding the tax’s constitutionality in the State of New York.

The alert reads:

New York State Supreme Court buildingIn February 2009, the New York State Supreme Court issued a decision that upheld the constitutionality of the statute on its face, and also as it applied to Amazon and Overstock, and dismissed both complaints in their entirety.

Amazon and Overstock appealed the decision in the Appellate Division First department, in a decision earlier this month, upheld the constitutionality of the statute on its face but ruled that further factual discover was warranted so that a determination can be made as to whether the statute … violated the Commerce and Due Process Clauses [read the full Brian Gallagher’s write-up here].

In the beginning of this month the Appellate Division of the New York Supreme Court issued a decision on Amazon’s appeal stating:

… the statute is constitutional on its face, and does not violate the Equal Protection Clause either on its face or as applied, and to reinstate the complaint for further proceedings with regard to the claims that, as applied, the statute violates the Commerce and Due Process Clauses, and otherwise affirmed, with costs.

Now to support their case Amazon (and Overstock) have to prove that NY-based affiliates are not involved in direct soliciting of sales in the state, not being engaged in personal selling (which would establish nexus, making the tax collection fully appropriate in the eyes of the state).

We will continue monitoring the situation, and keep you up-to-date on any further developments.

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