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Amazon to Pay Taxes Like the Rest of Us


New York to collect from online retailers.


The taxman cometh.

The New York State Supreme Court dismissed a lawsuit filed by Amazon (AMZN) that challenged a state law requiring online retailers to collect state and local sales taxes.

The judge said New York's law isn't aimed at all Internet companies. Instead, it requires a company to collect state sales tax only if it generates $10,000 or more in revenue from commissions paid to people in New York for sales referrals.

Amazon declined to comment, but could appeal the decision. State officials say the new tax could raise about $25 million a year for the state.

Last year, New York Governor David Paterson signed a law that requires online retailers to collect state sales tax from New York residents if any New York-based website earns money from the Internet retailer through affiliated links.

Amazon challenged the law, arguing it doesn't have offices, distribution centers or company representatives soliciting business from potential buyers in the state. Amazon noted that anyone can join its referral program, and that no record is kept of the state where referrals originate.

In addition, Amazon said the law was vague and could be applied to traditional brick-and-mortar retailers that buy print advertising in New York media outlets.

The New York trial court rejected Amazon's arguments.

"The neutral statue simply obligates out-of-state sellers to shoulder their fair share of the tax collection burden when using New Yorkers to earn profit from other New Yorkers," Justice Bransten wrote in her decision.

State law now requires New York residents to pay sales tax on Internet purchases, but customers are on an honor system to report the amount when filing state income tax returns. The new law requires out-of-state Internet companies to collect the sales tax upfront.

Traditional booksellers have long decried the lack of sales tax on Internet companies.

"The state of New York was subsidizing sales on Amazon to the degree of 8%," Oren Teicher, COO of the American Booksellers Association, told the Associated Press. "The government ought not ever be in the business of picking favorites among competing businesses."

It's easy to imagine unintended consequences stemming from the decision. Who knows - companies with servers in New York state could shift to out-of-state computers, which could hurt New York-based businesses. And if enough Internet companies pull out, layoffs and lower income tax receipts would be an inevitable consequence.

New Yorkers already pay some of the highest taxes in the nation, but here's another one for lawmakers in Albany to consider: The electron tax.

The electricity to run the Internet doesn't drop from the sky, and a good chunk of it is generated by coal-fired plants. New York lawmakers might also consider a tax on the cardboard boxes Amazon and other online retailers use to ship their products to customers - and don't forget a surcharge on the fuel used to get the goods to the buyer's front door. With a little thought -- very little, in the case of the New York State Legislature -- there could be a tax on just about everything.

But there could be an upside to all this tax nonsense: Book buyers may rediscover one of the great pleasures in life - browsing through the stacks at a bookstore. Too bad readers will have less money to spend on books, thanks to New York's tax-everything-that-moves-and-most-things-that-don't attitude.

No positions in stocks mentioned.
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