Litigation Challenging New York's Controversial Nexus Statute Continues


On November 4, an appellate court held that the New York affiliate nexus law does not violate the Equal Protection Clause and is facially constitutional under the Due Process and Commerce Clauses. However, the court remanded the case to further explore whether the New York law violates the Due Process and Commerce Clauses as applied to the taxpayer.1 As summarized in a previous A Pinch of SALT column, New York amended its tax law in 2008 to impose a sales and use tax collection requirement on out-of-state sellers who engage a New York resident to solicit business through an Internet Web site (New York’s “click-through nexus statute”).2 LLC, its affiliate Amazon Services LLC, and, Inc. (Plaintiffs) filed declaratory judgment actions challenging the law. A lower court dismissed the complaints in their entirety, and the Plaintiffs appealed.


The Plaintiffs had entered into agreements with associates located throughout the United States, including New York. These agreements compensated the associates based on a percentage of sales referred to the Plaintiffs. The Plaintiffs filed complaints seeking declaratory and injunctive relief that the click-through nexus statute was unconstitutional, both facially, and as applied to them, under the Commerce, Due Process, and Equal Protection Clauses of the U.S. Constitution.3 A lower court dismissed the complaints in their entirety, and the Plaintiffs appealed. In the interim, Overstock severed its relationships with its New York associates, and began to collect New York sales and use taxes.

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