N.Y. Orders Large Web Retailers To Charge Tax

WCBS-TV ^ | 04/25/2008 | Tony Aiello

[jonyyeh]

NEW YORK (CBS) ― New York Internet shoppers, take note: in five weeks, sales tax-free shopping will end on many Web sites thanks to rewritten state rules that are trying to force Internet retailers to collect.

At Chrono Tech Watches in White Plains, Jerry Nally is glad the clock is ticking on many Internet retailers that don't charge New York sales tax. Nally says those so-called "e-tailers" steal his customers.

"They'll come in our store, look at our product, touch it, play with it, look at the warranties, then go back to the web and buy it tax free," says Nally.

For years, retailers with "brick and mortar" stores in New York, such as Wal-Mart, have charged sales tax on orders placed through their Web sites. Yet Amazon.com and other e-tailers with no physical stores have not charged the tax, much to the delight of Internet bargain hunters, like online shopper April Cantin.

"Coming here, you have to pay a lot of tax, when you pay on line, you pay nothing, just shipping and handling and the item," she says.

In the midst of a budget crisis, New York is now telling Amazon and certain other large Internet-only vendors they must collect state and local sales tax -- if they allow sales via "click-throughs" from New York-based Web sites. The new rule is set to go into effect on June 1.

The state estimates this new Internet tax will bring in $50 million this year and $75 million next year.

The Retail Council Of New York State hopes the new rule is the first step toward collecting sales taxes on all Internet commerce.

But the new rulings aren't sitting well with the Internet giants. Amazon, the largest Internet retailer, is objecting to the decision, saying "this is the wrong time to increase taxes on New Yorkers."

"You will drive people away. People are not going to want to shop online anymore," says Cantin.

Nally is hoping online businesses will comply, however, telling CBS 2 "it's about time!"

"I have to pay tax, and Amazon should pay tax, it's as simple as that," he says. "There's no reason for a difference."

(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)

[PugetSoundSoldier]

Here’s an interesting question...

If my company is based in Oregon (which does not collect sales tax), and you are in NY, and you buy a product from my web site, does the sale actually happen in NY? What if my servers are in Oregon? All the transactions actually physically happened in Oregon, not in NY. You’re notified in NY, but the actual transaction happened in Oregon...

Wouldn’t the sale need to be taxed where the server resides, NOT the buyer?

[tarator]

Yep. The net effect will be that those NY-based web sites will suddenly stop making any money from selling ad space, because their click-through rates will plummet. In result, the great state of NY will collect less taxes. In other words, the libs will have shot themselves in the foot yet again. So, what’s new...

[AndrewB]

It is a confusing issue. It's my understanding that the tax is owed to the government of the location to which the product is shipped. On my site, we collect tax on any shipment made anywhere in South Carolina, where we are located (brick and mortar location) and we must remit taxes to the state, county and sometimes municipality to which we ship the product if it's a South Carolina address. We also are required to keep track of local option taxes. the location of my server is not an issue as I understand it.
I'm not sure if the state of New York can compel you to collect their tax in your scenario under the new laws going it to effect there. Sounds like they're only after the big boys thus far.

[CondorFlight]

Internet buying is like mail order. People have to pay shipping and handling but not local sales tax.

If they have to do both, they’ll just stop buying that way.

Which may be what the brick and mortar retailers want.

But the state won’t get any more money.

[Ouderkirk]

Simple solution is, if you are close to the state border, as I am, I simply get a Mailboxes Etc, mailing address in that state. Problem solved.

[jonyyeh]

I hope Amazon and the other web sites sue New York State in federal court. After all, this is a issue of the interstate commerce clause.

[jonyyeh]

I live in Arizona, which I hope doesn’t institute such a tax (especially since I bet Gov. Napolitano would probably love to fund her pet projects. She already supports a proposal to raise the state sales tax here.)

I know many internet sites (including Amazon, which has a warehouse in Phoenix) have warehouses here. I guess theoretically the states in which online retailers’ warehouses are located could be taxed if the states really wanted to, but most retailers process the orders in their home state. Besides, it is likely for retailer to have stuff shipped from other states, even if they have a warehouse in your state. Therefore, I think taxing online retailers’ sales could be a bit complex of a question, especially due to the involvement of interstate commerce.

Let’s hope most other states keep the internet tax free, and hope that the federal government keeps it that way (especially as the Dems strengthen their control of the legislative branch and look for new taxing possibilities).