Spitzer: wants to collect sales taxes on internet transactions

http://www.nysun.com/article/66382

[rquoter]Spitzer's Christmas Tax Surprise
Aims To Collect Levies on Sales Over Internet

By JOSEPH GOLDSTEIN
Staff Reporter of the Sun
November 14, 2007

New Yorkers going Christmas shopping online at Amazon.com will find an 8.375% surprise at the virtual cash register, courtesy of Governor Spitzer, who is moving aggressively to collect Internet sales taxes that have gone widely unenforced.

Under a new policy, major electronic retailers, such as Amazon.com, will be required to collect sales tax on all purchases from New York. The policy, based on a novel legal theory, could hasten the end of the Internet's era as a duty-free marketplace if other states follow New York's lead. With the policy, New York immediately took the lead among states that are seeking to tax online commerce.

"I'd say this puts us at the front," one state tax official, who requested anonymity, told The New York Sun.

Having pledged not to raise taxes, Mr. Spitzer is increasingly scrounging for ways to close a projected $4.3 billion deficit next year. State officials estimate that this latest initiative, which goes into effect in December, will bring in about $100 million more each year, split between state and local government tax revenue. Statewide, the sales tax averages about 8%, although in New York City it is 8.375%.

During this year's budget debate, Senate Republicans and business groups labeled many of Mr. Spitzer's revenue-raisers as tax hikes, while Mr. Spitzer insisted he was simply closing loopholes. They are likely to pounce on this effort as well.

The policy would shift the burden of reporting taxes from the purchaser to the online vendor. New Yorkers currently pencil in about $45 million a year in sales and use taxes owed from out-of-state or online purchases. But much more likely goes unreported.

When it comes to charging sales tax, e-retailers have been held to the same old standard that the U.S. Supreme Court set for mail-order vendors: The seller only needs to collect the tax on purchases in states where the vendor has a physical presence, such as a storefront or salesman. New York is saying that it has found a way around that obstacle to tax collection. Many e-retailers may have unwittingly lost their exemption because of the way they direct traffic to their Web sites, according to a tax memo recently released by the state's tax department.

At issue is the "affiliate program" used by many e-retailers. Web site operators can provide a link to an e-retailer in return for a commission on any sale resulting from customers using the link. While the affiliate program may consist of little more than a non-descript advertisement on the computer screen, the tax consequences may be huge: New York state says it is the equivalent of having an instate salesperson.

"It's just treating the affiliate the same way we would treat any other type of sales representative," Mr. Spitzer's budget director, Paul Francis, said in an interview.

Under this novel theory, any e-retailer who pays a New York-based Web site operator a commission would be required to start collecting sales taxes on any purchase from New York, regardless of whether it originated from an "affiliate."

"It's a clever move," a professor of Internet governance at Oxford University, Jonathan Zittrain, wrote by e-mail yesterday.

It wouldn't take much more than a fringe novelist from Brooklyn plugging his latest book on his Web site— and providing a link to Amazon.com in exchange for a commission of the sales— to force the online bookseller to collect a sales tax from every New Yorker who makes a purchase.

What is especially interesting, Mr. Zittrain wrote, is that the taxes doesn't just apply on sales made through affiliates, but on all sales "so long as they have an affiliate program at all."

A spokeswoman from Amazon.com, which boasts some 900,000 "affiliates" across the globe, did not return a call for comment.

But some e-retailers would likely respond by simply dropping their "affiliate" programs. Or they may end up challenging the policy in court, where some lawyers think New York's position may not hold up.

Of the affiliates, one tax lawyer, Scott Brandman said, "I don't see them as real agents of the company in the traditional sense.

"Many of these people have 200 such arrangements with companies," Mr. Brandman, of the New York office of Baker & McKenzie LLP, said. "They get a one percent commission on the click through and it may be nothing more than a box on the Web site."

The memorandum outlining the state's position says that it "is intended to clarify current policy and does not reflect any change."

The policy initiative doesn't affect vendors such as the bookseller Borders or clothier L.L. Bean which sells to New Yorkersboth through the Internet and stores. Such companies are already required to collect and remit taxes from online sales. That was established by a landmark case brought by the state of California against Borders' online operation.[/rquoter]

 

first he gives up on driver's licenses for illegals, not he flops on the Grinch tax:

http://www.nysun.com/article/66465?page_no=1

[rquoter]Spitzer Abandons Amazon Tax
Republicans Were Ready To Paint Him as 'Grinch'

By JACOB GERSHMAN
Staff Reporter of the Sun
November 15, 2007

In a second major policy reversal in less than a day, Governor Spitzer is backing down from a plan to require Amazon.com and other online retailers to charge state and local sales taxes on all purchases from New York.

Yesterday, just hours after The New York Sun reported on the new revenue collection scheme, the Spitzer administration announced that it was burying it for the time being — at least until after the Christmas shopping season. The move saved New York City shoppers from having to pay an additional 8.375% on many Amazon.com goods.

"Governor Spitzer believes that now is not the right time to be increasing sales taxes on New Yorkers," Mr. Spitzer's budget director, Paul Francis, said in a statement. "He has directed the Department of Tax and Finance to pull back its interpretation that would require some Internet retailers that do not collect sales tax to do so."

The turnabout came just hours after Mr. Spitzer said he was dropping his plan to allow illegal immigrants in New York to obtain driver's licenses.

In this latest instance, Mr. Spitzer wasted little time before pulling the plug on another controversial policy, aborting it before it threatened to snowball into a distraction for his administration.

Before Mr. Spitzer announced his retreat, Albany Republicans, who turned the license issue into a potent rallying cry against the governor, were drawing up plans for a fresh wave of attacks. Lawmakers said they were planning to seize on the tax policy as evidence that the governor had reneged on his pledges not to raise taxes.

Some were comparing the so-called Amazon Tax to the controversy that erupted in 1992 when New York tax agents staked out parking lots at New Jersey malls and scribbled down the license plates of New York customers taking advantage of the Garden State's lower taxes.

The Spitzer administration, which is facing a $4.3 billion deficit next year, was attempting to collect tens of millions of dollars in lost revenue from unreported use taxes from New Yorkers who shop at out-of-state online retailers, such as Amazon.com.

The policy would have forced Amazon.com to collect sales taxes by redefining what constitutes having a sufficient physical presence in New York.

The administration's new tax strategy was also bound to face legal challenges by online retailers challenging the state's interpretation of its sales tax nexus laws that define whether retailers have enough of a business presence in state that its liable for collecting local taxes.

"We are going to call it the Grinch tax," a Republican senator of Long Island, Dean Skelos, said. "It's outrageous that he's trying to push this through right before the Christmas and Chanukah season. He's just doing it on his own like he tried to do with driver's licenses for illegal aliens — without consulting with the Legislature, without really consulting with the public."

Told that Mr. Spitzer had changed his mind, a spokesman for Mr. Skelos said: "'How the Grinch Stole Christmas' does have a happy ending."

Mr. Francis, in an interview, said the governor was unaware of the new tax policy, which the tax department quietly issued with a memorandum on Friday. It was supposed to go into effect next month, in time for the holiday shopping rush.

"The governor really wasn't aware of this. My focus is to raise revenue, and the governor has a broader perspective," Mr. Francis said. "It's a big government, and in hindsight, we probably should have made sure he focused on it. It's one of those things, so you live and learn."
Under the now-scratched policy, out-of-state online retailers that employ third-party affiliates for directing traffic to their sites would have been required to collect sales taxes from New York customers.

Amazon.com has thousands of affiliate programs with Web site owners who post links to the retail company and earn commissions when visitors click on them. The Spitzer administration, in effect, wanted to treat those affiliates like sales representatives.

Since some of those affiliates are based in New York, the tax department was arguing that the retailers had a physical presence in the state and therefore were liable for collecting the taxes. New York would have been the first state to impose such a strict interpretation of sales tax nexus law.

When Mr. Francis spoke to the Sun on Tuesday, he defended the stricter enforcement of the tax code as a way of "leveling the playing field" among online retailers and New York businesses. "It's not a new tax; it's simply collecting an existing tax," he said.

Despite his statement, Mr. Francis yesterday said he hadn't changed his view of the policy. "I don't regard it as a tax increase. It's only a tax increase to the person who is paying it," he said.[/rquoter]