New York implemented a law that imposes sales tax collection duties on some out-of-state retailers that are not physically present in the state. The law requires out-of-state retailers engaged in “affiliate marketing” to collect sales tax. Affiliate marketing occurs when the retailer enters a contract with a third party (the affiliate) who operates an independent website. Under the contract, the affiliate agrees to provide on its website a link that directs readers to the retailer’s website in exchange for a percentage of the sales made to readers who use the link.
Overstock.com and Amazon.com sued the New York State Department of Taxation and Finance claiming that the law violated a 1992 decision of the Supreme Court which held that the Commerce Clause of the Constitution prohibits states from requiring out-of-state businesses that are not physically present in the state to collect sales tax. The New York Court of Appeals found that the law did not violate the Commerce Clause because the physical presence of the affiliates was sufficient to require the retailer to collect the sales tax.
The companies requested that the Supreme Court hear their arguments why New York should not be permitted to require the collection of state sales tax based on affiliate marketing. However, on December 2, the Supreme Court declined to hear the cases and let New York continue to require the affected retailers to collect sales tax.
The House and Senate have been working on a law (The Marketplace Fairness Act of 2013) that would allow states to require on-line and other out-of-state retailers to collect sales tax. However, no agreement on the law has been reached as of this time.
Earlier this year Governor Kasich vetoed a law similar to the New York law. Currently, Ohio operates under the general requirement that out-of-state retailers with no physical presence in or other connection to the state are not required to collect sales tax. However, the residents of Ohio that make purchases from out-of-state retailers who do not collect sales tax are still required to pay Ohio use tax.
