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The NY ruling contradicts other state courts and could lead to a US Supreme Court challenge over who pays tax on online sales.
New York's highest court decided Thursday that Amazon, Overstock and other online retailers must charge sales tax to their customers in the state.
Amazon, the world's largest retailer, and discount Internet seller Overstock separately brought lawsuits against the state of New York's Department of Taxation and Finance in 2008, claiming that a law requiring retailers to pay taxes if they solicit business in New York through a link to a website was unconstitutional.
The tax requirement violated the Due Process Clause by "creating an irrational, irrebuttable presumption of solicitation of business within the state," the retailers claimed.
A lower court threw out the lawsuit and the New York State Court of Appeals agreed.
"If a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden," Chief Judge Jonathan Lippman wrote in a majority decision.
New York state’s commissioner of taxation and finance, Thomas H. Mattox, commended the ruling.
"Since being implemented, this law has resulted in the collection of roughly $500 million in state and local sales tax. This is equivalent to approximately $6 billion of taxable retail sales into New York that were previously made without the sales tax being collected," Mattox said.
New York will join eight others which require out-of-state retailers to collect sales tax from customers even when they do not have a physical presence in the state.
"We are disappointed in today's ruling, but confident of our position that the New York law is unconstitutional on its face and violates due process," said Overstock's acting Chief Executive Jonathan Johnson.
"Given that courts in other states have upheld US Supreme Court precedent, and struck down similar laws, the matter appears ripe for resolution by the US. Supreme Court."
Overstock, which is based in Utah, will likely appeal to the Supreme Court.