Transcripts

Sales Tax Meets Cyber Sales

SUSIE GHARIB: If you live in New York State, get ready to pay more for your next online purchase. Starting Sunday, a new law will require web sellers to collect sales taxes on shipments into the Empire State. New York State expects the move will generate millions of dollars in new tax revenues. But online retailers oppose it. As Scott Gurvey reports, Internet giant amazon.com is challenging the new law in court.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: State and local governments have been collecting sales taxes since 1921, when West Virginia enacted the first one. Merchants are generally required to collect the taxes and compliance is good. But many states also require that residents report and pay taxes on purchases made from out of state sources. Few do. The issue now is not whether New York can require that its residents pay tax on out-of-state purchases. It is whether New York can force Amazon and other online retailers to collect that tax. Online retailers are concerned the law will set a costly precedent. Patti Freeman Evans of Jupiter Research says it would be a hardship for online retailers to work with 7,500 separate taxing jurisdictions nationwide.

PATTI FREEMAN EVANS, RESEARCH DIRECTOR, JUPITER RESEARCH: It is an increased expense to them to maintain the systems that are necessary to know and understand what taxes to collect in what instances for what amount for what locations.

GURVEY: New York's new law orders online retailers to collect state taxes on purchases shipped to the state. New York is concerned it is losing revenue as consumers switch from brick and mortar stores to shopping on the Internet. Amazon has a physical presence in some states, but not in New York. In a lawsuit filed last month in state court, Amazon says that makes the new law unconstitutional. Tax attorney Brian Andreoli says New York's argument is a stretch.

BRIAN ANDREOLI, PARTNER/TAX ATTORNEY, DLA PIPER: New York State is trying to clarify what the law should be, but technically yes, they are going beyond what has been the conventional wisdom because there is an exemption of taxation on the Internet by the Federal government.

GURVEY: The new law claims jurisdiction when a vendor solicits business and the state says that applies to members of Amazon's affiliates program, some of whom live in New York. Attorney Scott Clark says other states are watching.

SCOTT BRIAN CLARK, PARTNER/TAX ATTORNEY, SONNENSCHEIN NATH & ROSENTHAL: New York is being overly aggressive on this issue. I think unless somebody challenges New York State. other states and other jurisdictions might follow. So I do think there is merit in Amazon's position and it's quite a strong position.

GURVEY: New York has yet to file its answer to Amazon's complaint and this is the kind of case which can drag on for years. But the state is already counting on the new law to generate $50 million in revenue to help its balance the 2009 budget. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.