Effective June 1, 2008, certain online retailers that use New York resident businesses or organizations to refer

customers to their websites in exchange for commissions or other compensation are required to register and begin collecting New York State and local sales tax on all sales made into the state (Chapter 57, N.Y. Laws of

2008).

This represents a significant change in the New York sales tax law, in that it reaches online sellers located

entirely outside New York that previously were not required to collect sales tax on sales to New York customers. The amendments are unprecedented — indeed, no other state has enacted such sweeping legislation. The United States Supreme Court has held that, under the Commerce Clause of the United States Constitution, a state may only impose a sales tax collection obligation on a seller that is physically present in the state. Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The new law may violate Quill, and lawsuits have already been brought challenging its constitutionality.

Under the new law, a seller located entirely outside New York will be presumed to be a New York sales tax vendor, and thus required to collect and remit sales tax on sales made into New York State, if (1) it has agreements with New York State resident businesses or organizations to refer customers in exchange for a commission or other compensation, and (2) its aggregate gross receipts from sales to New York customers referred under these arrangements exceed $10,000 during the preceding four quarterly sales tax periods. The presumption can be rebutted by establishing that the New York resident’s only activity on behalf of the seller is a link provided on the representative’s website to the seller’s website. If the seller is considered a vendor, it will be required to collect sales tax on all sales it makes to New York customers, not merely on sales resulting from these arrangements.

(See article for more information).