The fact giving raise to an array of legal issues has been the decision of the State of New York to charge sales taxes to Amazon based on the existence of physical presence through the Amazon Associates that the State understands act as the Seattle-based company’s agents. The rule has been that as long as a retailer does not have a physical presence in the buyer’s state, the seller does not need to collect sale taxes. While some thought that the rule had to be changed to look similar to that of the EU’s VAT in regards to electronic commerce (the topic of my master’s thesis), what the State of New York did was simple to expand the concept of physical presence. The State’s reasoning is that if Amazon gets a commission for the Associates’ sales, the later become Amazon agents and, accordingly, Amazon would start having physical presence.
If we follow Fortune Magazine
In truth, all purchases on Amazon have always been subject to taxes. Until now,
only four states required Amazon itself to collect the tax: Washington (where
Amazon's HQ is), North Dakota (the site of customer relations operations),
Kentucky and Kansas (those last two contain large Amazon distribution centers).
In other states, shoppers are supposed to keep track of their untaxed
out-of-state purchases and report them in their state income tax returns every
year. Needless to say, this doesn't always happen.
In any case, the State of New York law requiring the collection of taxes in such unorthodox way does not differ much from most tax laws that create legal fictions in order to create a nexus between an act of commerce and a tax jurisdiction based purely on tax policy. It seems that now that some states, probably followed by all the others, have decided to put on the same foot Internet retailers and brick and mortar retailers from the tax point of view, we could discuss again what is the ideal legal fiction to attract tax liabilities that are fair, clear and simple. On the other hand, it has been clear for many years that the tax policy of not taxing Internet commerce to promote its development has been, again, the result of successful lobbying, ignorant policy makers and general public lack of interest (all mix with some dose of misinformation). There has never been a strong case for subsidizing Internet commerce development, not because such a development has not to be welcomed, but because such subsidy has not been necessary (few industries have growth so quickly and strongly and have made more people billonaires, and it could be argued that in order to violate the principle of technological neutrality in tax issues a very strong case should be put forward).
So, it may be time to review some of my old books and see what happen in the formerly hot area of Internet law…