New York Affiliates Cut Off by Overstock Because of New Sales Tax Law

05/16/2008

Overstock.com Inc. has notified its more than 3,400 New York-based affiliates that as of June 1, they can no longer provide advertising for the company unless and/or until the states sales tax law is changed or deemed unenforceable by the courts.

As of June 1, New York Internet retailers must begin collecting up to 9.5% sales tax from their New York e-commerce customers. Patrick Byrne, the chairman and CEO of Overstock responded by saying, in a nutshell, that this could affect their sales negatively.

Amazon.com has filed suit in New York Supreme Court to have the law overturned. Internet retailers outside of New York are not required – yet – to collect sales tax unless they have a physical presence in the state. While Amazon.com does not maintain a physical presence in the state, it is required to collect sales tax because the state tax law further stipulates that if a company does $10,000 or more in annual sales in the state (directly or through affiliates), then state sales tax must be collected.

In its suit, Amazon maintains that as all business is done via affiliates, that it doesn’t have a physical presence in the state, and neither does it have any formal representatives in the state soliciting on its behalf, the law doesn’t apply to its company.

Overstock and Amazon think the law unfair, calling it unconstitutional. These powerful web companies rank as the No. 1 (Amazon) and the No. 30 (Overstock) Internet retailers in business.

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