Amazon loses to NY in suit over online tax haul

New York state won a round in court against Amazon.com over a new law requiring out-of-state online companies to collect sales tax from shoppers in New York.

The law applies to companies that don't have offices in New York, but have at least one person in the state who works as an online agent - someone who links to a Web site and receives commissions for related sales.

A state Supreme Court justice in Manhattan ruled the suit should be dismissed, saying Amazon had no basis for legal action.

Patty Smith, an Amazon spokeswoman, declined comment. The company sued last year, challenging the constitutionality of the legislation. It could still appeal.

The suit argued the change unfairly targets Amazon, is overly broad and vague, and violates the commerce clause of the constitution because it imposes tax-collection obligations on out-of-state entities.

New York state argued that the law closes a "tax loophole."

Businesses with a physical presence in New York already collect the state sales tax on online purchases. The proposed law would apply to companies that have $10,000 or more in New York sales.

Officials estimated the state would gain nearly $50 million in the next two years from the tax. New Yorkers, like residents of many states, are currently on an honor system to report their online spending when they file state tax returns.

Booksellers in New York have long protested the lack of a sales tax on companies like Amazon.

"The state of New York was subsidizing sales on Amazon to the degree of 8 percent," said Oren Teicher, chief operating officer of the American Booksellers Association. "That was unfair. The government ought not ever be in the business of picking favorites among competing businesses."