Aimee B. Davis Law P.C.

Shifting the Risk of an Unanticipated Sales Tax Liability

{3:55 minutes to read}

Since the inception of sales over the Internet, retailers and other Shifting the Risk of an Unanticipated Sales Tax Liability by Aimee Davisonline distributors of goods and services have faced the question of whether to collect sales tax on their transactions. Divergent state sales tax laws remain at the root of the confusion. The issue is especially troublesome for websites selling goods to buyers in multiple states.

The Issue:

States lose over $20 billion a year in uncollected sales tax from web retailers. Nevertheless, online retailers such as Amazon take issue with New York State’s over-reaching attempt to recoup this loss.
Legal precedent was thought to be established by the Supreme Court in 1992 in a case involving a mail-order company. In its decision, the nation’s top court made it clear that states could only require retailers to collect a tax in states where they have a “physical presence.”
Amazon acknowledges its obligation to collect sales taxes in states where it operates distribution centers. However, New York takes the position that retailers such as Amazon must also collect sales tax from sales made through links, hosted by New York-based affiliates, to the retailer’s website.
The New York Court of Appeals, the state’s highest court, deems these “affiliation” agreements to create an in-state sales force. Some retailers argue this is an unconstitutional abrogation of the physical presence requirement.

The overarching nature of the so-called “Amazon Laws” doesn’t only affect the largest online sellers of consumer products.

The aggressive approach to sales taxes taken by New York on digital purchases also impacts small businesses providing its customers with online access to certain publications. Does a consumer of online publications create a nexus in New York solely by accessing content which is created and hosted online in New York? The lawyerly answer to that question is a resounding “MAYBE”.

A Possible Solution:

So, what can a small business do to protect itself from draconian civil and criminal penalties that may be imposed by the State of New York for an inadvertent failure to properly collect and timely remit sales taxes? At Aimee B. Davis Law P.C., we incorporate carefully drafted language into the vendor contracts used by our clients, which is designed to effectively shift the risk of an unanticipated sales tax liability. This safeguard allows our clients to collect and remit sales tax where applicable, as the sales tax liability minefield continues to shift over time. Of course on all tax-related matters, always first consult with your tax advisor.
If Congress passes the Marketplace Fairness Act, this confusion will become a thing of the past. The bill seeks to harmonize tax regulations across all 50 states, enabling them to collect sales taxes on online transactions from remote retailers with no physical presence in their state. Like all other things, this act has been languishing in Congress since 2013.
Given the current political landscape, what will become of the proposed federal legislation remains anyone’s guess, but Aimee B. Davis Law P.C. remains committed to advising its clients on the legal and business matters that are important to them. If you have any questions, please feel free to contact us at (917) 617-2243 or email aimee@aimeebdavis.com.

Aimee B. Davis Law P.C.

917-617-2243
122 Ashland Place
Brooklyn, NY 11201

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