Since the dawn of US ecommerce, the question has been “to sales tax, or not to sales tax?”

Consumers and online retailers are squarely in the don’t-tax camp, while state governments, which stand to reap the tax dollars, are of a differing opinion. New York state has been trying to get out of state sellers, such as Amazon, to collect and pay state sales tax on transactions, which could reap hundreds of millions of dollars in annual revenue for the cash-strapped government (particular now that once-lucrative Wall Street revenues are fading fast).

The rule of thumb has long been that if the online seller has a bricks and mortar local presence in the state, e.g. has local Apple stores, state tax is levied on online transactions. Amazon, as well as other online-only retailers such as, challenged New York’s attempt to get them to pony up 8.25 percent on all New York state transactions.

Yesterday, a NY State judge dismissed Amazon’s suit as groundless.

Blame…..the affiliates?

Because Amazon generates more than $10,000 in referrals from New
York-based affiliates, the judge’s reasoning goes (ergo, New Yorkers to
earn money from other New Yorkers) Amazon, as well as other
out-of-state retailers with affiliate programs, are going to have to
get on the state tax bandwagon.

And that’s going to hurt. Not NY state, of course, but online retailers and consumers.

seldom-discussed bit of accepted wisdom is that ecommerce is buoyed in
no small part by its ability to enable buyers to avoid paying taxes on
high ticket items (which also lessens the burden of shipping charges).
Buying that new laptop on Amazon versus a local store can shave a
couple hundred dollars in sales tax right off the price – a strong
incentive to buy, particularly in tough economic times.

aftermath of this ruling is going to be interesting. How much (more)
will online retailing suffer, now that their tax amnesty status in New
York is lifted? Will affiliate programs be designed on a state-by-state
basis in the US? It’s an absurd notion relative to the nature of the
web, but entirely possible in hard economic terms.

This will be
an interesting one to watch. Bottom line, New York’s decision to
disincentivize ecommerce could not possibly have come at a worse time.