The Heartland Institute | 01 Aug 2008

Overstock.com has become the second online retailer (after Amazon) to mount a legal challenge against a New York law that effectively defines them as state-based merchants, forcing them to collect sales tax on purchases made by consumers who reside in the Empire State. A new statute passed by the New York legislature April 9 attempts to circumvent a 16-year-old U.S. Supreme Court ruling that prohibits a state from collecting sales tax from any merchant that does not have a “nexus,” or physical location, within the state. The statute defines any New York-based third party who collects a commission on sales to an out-of-state merchant through referrals, specifically “clickthroughs” from Web site advertising, as an in-state “nexus” for that merchant. The statute, which went into effect April 15, is little more than an attempt to shift the burden and cost of sales tax collection to merchants, said Steve DelBianco, vice president for public policy at the Association for Competitive Technology (ACT). Most states, including New York, require consumers to self-report purchases from out of state and pay sales taxes on them, although states rarely enforce the rule, he said. ACT opposes the tax and, as a member of the American Legislative Executive Council’s Telecom and IT Task Force, has proposed model legislation that would allow states to legally protect targeted resident merchants from aggressive sales tax laws enacted in other states.

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