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Court of Appeals decision, Amazon.com and Overstock.com cases

Court of Appeals decision, Amazon.com and Overstock.com cases

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Published by Cara Matthews
New York State Court of Appeals decision, March 28, 2013
New York State Court of Appeals decision, March 28, 2013

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Published by: Cara Matthews on Mar 28, 2013
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================================================================= This opinion is uncorrected and subject to revision beforepublication in the New York Reports.-----------------------------------------------------------------No. 33Overstock.com, Inc.,Appellant,v.New York State Department of  Taxation and Finance, et al.,Respondents.-----------------------------No. 34Amazon.com, LLC, et al.,Appellants,v.New York State Department of  Taxation and Finance, et al.,Respondents.Case No. 33:Daniel S. Connolly, for appellant.Steven C. Wu, for respondents.Case No. 34:Randy M. Mastro, for appellants.Steven C. Wu, for respondents.LIPPMAN, Chief Judge:Plaintiffs challenge Tax Law § 1101 (b)(8)(vi) (theInternet tax), alleging that it is unconstitutional on its facebecause it violates the Commerce Clause by subjecting onlineretailers, without a physical presence in the State, to New Yorksales and compensating use taxes. They also maintain that theInternet tax violates the Due Process Clause by creating an- 1 -
- 2 -Nos. 33 & 34irrational, irrebuttable presumption of solicitation of businesswithin the State. We reject plaintiffs’ facial challenges.I.Plaintiff Amazon.comLLC is a limited liability companyformed in Delaware; Amazon Services LLC is a limited liabilitycompany formed in Nevada (collectively “Amazon”). Its principalcorporate offices are located in the State of Washington. Amazonis strictly an online retailer -– selling its merchandise solelythrough the Internet –- and represents that it does not maintainany offices or property in New York.Amazon offers an “Associates Programthrough whichthird parties agree to place links on their own websites that,when clicked, direct users to Amazons website. The Associatesare compensated on a commission basis. They receive a percentageof the revenue fromsales generated when a customer clicks on theAssociates link and completes a purchase fromthe Amazon site. The operating agreement governing this arrangement states thatthe Associates are independent contractors and that there is noemployment relationship between the parties. Thousands of entities enrolled in the Associates Programhave provided a New York address in connection with their applications.Plaintiff Overstock.comis a Delaware corporation withits principal place of business in Utah. Overstock likewisesells its merchandise solely through the Internet and does notmaintain any office, employees or property in New York. Similar- 2 -
- 3 -Nos. 33 & 34to Amazon, Overstock had an “Affiliates” programthrough whichthird parties would place links for Overstock.comon their ownwebsites.
When a customer clicked on the link, he or she wasimmediately directed to Overstock.com, and if the customercompleted a purchase, the Affiliate received a commission.According to the parties’ Master Agreement, the Affliates wereindependent contractors without the authority to obligate or bindOverstock.In April 2008, the legislature amended the Tax Law toinclude the subdivision at issue here. In connection with thestatutory definition of “vendor,” the Internet tax provides that:“a person making sales of tangible personalproperty or services taxable under thisarticle (seller) shall be presumed to besoliciting business through an independentcontractor or other representative if theseller enters into an agreement with aresident of this state under which theresident, for a commission or otherconsideration, directly or indirectly referspotential customers, whether by a link on aninternet website or otherwise, to the seller,if the cumulative gross receipts fromsalesby the seller to customers in the state whoare referred to the seller by all residentswith this type of an agreement with theseller is in excess of ten thousand dollarsduring the preceding four quarterly periods”(Tax Law § 1101 [b][8][vi]). The statutory presumption, however,can “be rebutted by proof that the resident with whomthe seller
Overstock suspended its Affiliates program(for those whoprovided a New York address) shortly after the enactment of theInternet tax at issue here.- 3 -

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