In the long-running feud over online sales taxes, the
federal courts have consistently held that Internet retailers must have a
"physical presence" such as a warehouse or employees in a state to be
subject to that state's sales tax. A handful of states, including New York,
however, have sought to expand the definition of physical presence
legislatively to include so-called affiliates, independent contractors who are
paid to promote the Internet retailers on their own websites.
Amazon.com Inc. and Overstock.com Inc. challenged that definition in court,
arguing that affiliates were not employees and therefore did not constitute a
physical presence. On March 28, New York's highest court, the Court of Appeals,
rejected that argument, upholding a lower court ruling requiring the Internet
retailers to collect New York sales tax from New York residents.
"The world has changed dramatically in the last two decades, and it may be
that the physical presence test is outdated," the court said. "An
entity may now have a profound impact upon a foreign jurisdiction solely through
its virtual projection via the Internet.... The presence requirement will be
satisfied if economic activities are performed in New York by the seller's
employees or on its behalf."
Overstock said it might appeal the ruling.
"It's unfortunate and the [U.S.] Supreme Court ought to look at
this," said the company's acting chief executive Jonathan Johnson.
"We have states saying different things," he said, pointing to an
Illinois Supreme Court ruling invalidating a similar tax. (BOSTON GLOBE,
REUTERS, ACCOUNTINGWEB.COM, NEWYORKCOURTS.GOV)
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