In case you missed it, on April 9th, New York legislators approved a law that calls for the collection of taxes by internet retailers in certain situations. This new law often referred to as “Amazon Tax” requires tax to be collected by companies that sell goods or services through “referrals” in the state of New York.
It does not mean that any internet sale to a customer in New York is subject to New York sales tax. Rather, this is a very aggressive stance by New York in determining what constitutes a “nexus” or relationship with their state. Federal law states that a “nexus” must exist between a company and a state before a company is obligated to collect sales taxes for that state. Typically, for example if a business runs any operation or has remote employees in any state, then a “nexus” is said to exist with that state and taxes should be collected and payed as appropriate. Each state dictates what conditions constitute a “nexus”.
As I understand it, in the case of New York, they basically are saying that companies that have a referral agent living in New York constitutes a “nexus” between the state of New York and the company. Therefore any sales done through a referral agent are subject to sale tax collection by the selling company. Amazon by way of example has a large number of folks who earn referral commissions by placing a Amazon link on their website to the online bookstore giant. This new controversial law would require Amazon to start collecting sales taxes on these sales. New York estimates that the new law will generate approximately $50 million a year in new tax for the state.
So, don’t fret that you must start collecting sales taxes for New York. If you do not currently have a “nexus” with that state and you do not have a referral program, then you are probably OK. That said of course, you should check with your tax and legal advisor’s and not use this post as your guiding light.
On a personal note, though I understand the need for a state to appropriately collect taxes due, I’m not sure that I should pay New York sales tax for a book I buy from amazon when I live in Arizona and I just happen to buy the book by clicking into Amazon’s site through a referral link of someone who lives in New York… Guess I don’t see the “nexus” there.