Amazon continues to challenge NY’s recent law requiring the online retailer to collect and remit NY state sales taxes on sales to customers in the state, but meanwhile it will comply with the law when it becomes effective on June 1. New York asserts that Amazon’s New-York-based “affiliates,” third-party websites that link to Amazon and receive commissions in exchange for generating sales, establish the nexus with the state required by the US Supreme Court in its 1992 decision Quill Corporation v North Dakota. Overstock.com has taken the opposite tack, canceling relationships with its 3,400 New-York-based affiliates.
The New York law puts an Internet-specific spin on the issue addressed by Quill. The California Court of Appeal upheld the state’s collection of sales taxes from out-of-state Internet retailer Borders Online based on its agency relationship with Borders, Inc. in Borders Online v State Board of Equalization. Borders, Inc. had a number of stores in California and, notwithstanding its separate corporate governance, engaged in cross-promotional activities with Borders Online and gave cash refunds for merchandise purchased from Borders Online. This agency relationship was more pervasive than the commission-for-referral affiliate relationships employed by Amazon and Overstock.com, but the question remains whether changes in the manner of commerce require updating the commerce clause and due process tests articulated in Quill. This commentary–which I’m not prepared to endorse–presents an argument why the New York law is unconstitutional under Quill.