New York’s highest court on March 28 upheld a New York law subjecting out-of-state internet retailers to New York sales tax collection requirements on the basis of their “affiliate” advertising programs.  Although the U.S. Supreme Court has held that a state cannot constitutionally require a retailer to collect sales taxes unless the retailer has a “physical presence” in the state, the New York Court of Appeals “deemed” that affiliate advertising on third-party New York residents’ websites “[e]ssentially . . . established an in-state sales force.”  But the court’s holding — which oddly appears to draw a constitutional line between flat-fee and commission-based advertising arrangements — is difficult to square with both Supreme Court doctrine and the realities of the online “affiliate” relationship.  In the end, the Supreme Court or Congress may have the final word on this issue.
Continue Reading New York Court of Appeals Holds that States May Constitutionally Collect Sales Taxes from Out-of-State Internet Retailers If Those Retailers Pay Commissions to In-State Websites