Sunday, April 13, 2008; Posted: 08:29 AM
The state's new budget, approved by the Legislature last week and awaiting Gov. David Paterson's signature, requires major Internet retailers such as Amazon.com to start collecting sales tax on purchases by New Yorkers by June 1.
State officials estimate the move will bring in around $50 million in new revenues by making cash-strapped New York the first state to collect sales taxes directly from online retailers that don't have some type of brick-and-mortar presence here.
For consumers, the provision means even fewer chances to avoid the 8.75 percent local sales tax hit by shopping online with out-of-state merchants.
Of course, those consumers are supposed to pay the sales tax voluntarily on any untaxed online purchases when they fill out their state income tax returns. That honor system
brought in about $45 million last year.
Regardless,
it's getting harder to find Internet retailers that don't charge New Yorkers sales tax. Only two of the top 10 Internet retailers -- Amazon and electronics retailer NewEgg.com -- don't collect sales tax on goods sold to New Yorkers, state officials say.
That's mainly because the Supreme Court ruled back in 1992 that states can't place too much of a burden on out-of-state merchants. Back then, collecting sales taxes from nearly 8,000 different taxing jurisdictions with different tax rules would have been a big burden.
So the standard for collecting sales taxes on Internet sales became whether the retailer had some type of physical presence in a state, be it a store, a warehouse or some other concrete presence. As retailers set up shop in New York, they must collect sales taxes here. L.L. Bean's Web site, for instance, didn't charge New Yorkers sales tax until last year, when the big catalog retailer opened a store in an Albany mall.
New York merchants say the provision will level the playing field by eliminating the 8.75 percent price advantage enjoyed by many online retailers.
"Who benefits the most is the small business -- the independent businesses who are having their lunch eaten by these Internet retailers," says Ted Potrikus, the executive vice president of the Retail Council of New York State, which supports the tax collection initiative.
Jonathon Welch, co-founder of the Talking Leaves bookstores in Buffalo, says it's about time the big Internet retailers started playing by the same rules he does. "Amazon and other Internet retailers have, for a long time, gotten a free ride," he says. "They have a leg up on us because they don't have to collect sales tax."
The new legislation would affect companies that have $10,000 or more in New York sales. It would apply to companies that don't have a physical presence in New York, but do have at least one person in the state who works as an online agent, such as a New York author whose Web site includes a link to Amazon and is paid a commission when a consumer uses it to buy a book.
Amazon executives lobbied against the change, calling it a radical departure from what's done elsewhere, although a handful of other states have considered -- and dropped -- similar plans. For now, they're being cautious. "We are still reviewing the final language from Albany regarding the proposed change to sales tax collection requirements," says Amazon spokesman Craig Berman.
Collecting sales taxes can be difficult, as the tax-free gasoline and cigarette sales on Indian reservations show. And Potrikus thinks the new rules are almost certain to be challenged in court.
"I don't think the Internet-only merchants are going to take this lying down," Potrikus says. "This will reach a heck of a lot farther than New York."
drobinson@buffnews.com
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