Watch Out: Use Tax is Rearing Its Ugly Head Again

For the most part, multichannel marketers who don’t operate national retail chains have had it pretty good since the industry beat back North Dakota — and, effectively, the other 49 states — nearly 16 years ago in Quill v. North Dakota. This, of course, was the landmark case that upheld the law that it’s unconstitutional for states to require out-of-state merchants with no physical presence in such states to collect sales, or use, taxes on remotely placed purchases.

But earlier this month, the state of New York passed the Internet Sales Tax provision, which requires out-of-state online merchants to collect sales taxes from New York residents. The state law could have national ramifications and make life difficult for direct marketers. Remember: The big hassle with regard to the use tax battle isn’t so much having to charge customers more than just the purchase price plus shipping and handling. It’s the hassle of having to adopt so many different state tax structures and having to communicate that to customers.

In a nutshell, the New York law is giving out-of-state e-merchants until June 1 to register with the state and start collecting taxes. But it’s also left some of those in the know on tax issues scratching their heads. This nexus-expanding legislation is “an odd statutory creature to say the least,” Catalog Success’ Legal Matters columnist George Isaacson tells me. That’s because this legislation is based on an “agency nexus” theory. As Isaacson explains, the state treats out-of-state marketers as having an in-state physical presence because of the sales activity of in-state sales representatives.

Many Loopholes
There are plenty of warning signs to come out of this, but at the same time, there are plenty of loopholes.

* Marketers who earn less than $10,000 in New York sales through affiliate referrals are exempt from it;