Out of Control Policy Blog

Taxmanís Remorse?

Pardon my tardiness on this, but it appears a few weeks ago the New York State Senate voted to repeal the egregious statute aimed at collecting sales taxes from out-of-state Web merchants. As I wrote back in May, The New York law declared any in-state Web affiliates of an out-of-state retailer to be a "nexus" as per Quill Corp. v. North Dakota, the 1992 U.S. Supreme Court decision that ruled retailers were not liable for sales taxes in states where they had no presence.

The law became effective June 1, but just 24 days later, the state senate voted 44-18 to repeal the law, although that bill, S. 8638, seems to have fallen into oblivion. After reading about the repeal on a few marketing industry blogs, The New York Times' Saul Hansell went in search of it.

It took me a bit of time on the phone to Albany to figure out what was going on. The legislature's own computer system provided limited information on the bill (S8638). There was no sponsor listed for the bill, which was introduced on June 19, five days before it was passed. It now sits in the Assembly Ways and Means Committee, again with no sponsor listed.

Scott Reif, a spokesman for the Senate majority leader's office, said the bill was written by the counsel to the Senate Rules Committee. That committee was controlled at the time by Joseph L. Bruno, who retired as majority leader shortly thereafter. I asked Mr. Reif why the Senate would reverse itself on the sales tax issue so soon after imposing it as part of the budget.

"The budget bill is a 'take it or leave it' vote," he said. And some members wanted the chance to express their views on the sales tax separately. The repeal bill passed the Senate 44 to 18, with all the Republicans and some Democrats supporting it.

When I called over to the Assembly, I didn't find much interest in the bill. Moreover, the regular legislative session is over for the year. On Tuesday night, Governor David A. Paterson called on the legislature to return next month to help fill a $26 billion budget gap. An Assembly spokeswoman said it is unlikely that the body would have time to take up the tax issue. And it's hard to see why lawmakers trying to fill a huge budget hole would be eager to repeal a provision that brings in $50 million a year in revenue for the state.

An official in the Paterson administration, who spoke on the condition of anonymity, said he did not expect the sales tax repeal bill to pass the Assembly and he assumed that the governor would veto it if it did.

I provide a more detailed critique of the New York law in the 2008 Annual Privatization Review (p. 95). Affiliate Web sites generally provide ads for companies like Amazon.com and Overstock.com. Should a user clickthrough from an affiliate site to the retailer and then make a purchase, the retailer will pay the affiliate a commission. As I wrote:

"...[U]p until now, no lawmaking body has attempted to define an in-state, but independent third party as a nexus for an out-of-state business. Critics of the new statute consider it an overreach.

Amazon.com and Overstock.com, while registering in New York to be in compliance, have responded with lawsuits, claiming that the statute runs counter to Quil. Both companies also say they can't determine whether affiliates are actual legal residents of New York, whether their websites are hosted within the state at all, nor can they control the affiliate websites, nor determine whether a specific ad is a direct or indirect solicitation for business."


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