Amazon Sues New York State Over Online Sales Tax LawAmazon Sues New York State Over Online Sales Tax Law

Amazon has filed a lawsuit against New York state claiming a new law mandating that online retailers to collect sales taxes from New York residents is invalid, illegal, and unconstitutional.

The law, sometimes referred to as the "Amazon tax," requires companies paying New York organizations for customer referrals to collect and pay taxes to the state. Amazon said the nickname for the law demonstrates that it targets a specific company and therefore violates the equal protection clause of the U.S. Constitution.

The company also argued in New York State Supreme Court that it should not be subject to New York taxes because it lacks a physical presence in the state.

The U.S. Supreme Court ruled in 1992 that remote sellers cannot be held responsible for collecting taxes for states where they lack a physical presence. In other words, they are only required to collect sales tax from customers in states where they have offices, distribution centers, stores, or other facilities.

The New York law expands the definition of physical presence to include affiliates that refer business to Amazon and other online retailers.

The Electronic Retailers Association opposes a federal bill that would allow all states to collect taxes from companies selling to their residents. It echoes Amazon's arguments that such a law would be unconstitutional.

New York has required its own residents to report out-of-state purchases and pay sales tax on them, but enforcement has been difficult. That's why state legislators tried to shift the burden onto sellers with the new law.

The lawsuit has not yet been entered into New York state's online court records, but Wired magazine posted the Amazon complaint (PDF) after breaking the story.

Editor's Note: This story was edited on May 5 to correct the name of the trade association that opposes a federal bill that would allow all states to collect taxes from companies selling to their residents.