Gavin Howe
Governor Cuomo of New York has proposed a law to eliminate the internet tax advantage, which exempts third-party marketplace providers like Amazon from collecting and remitting New York sales tax on transactions conducted over their sites. This law, referred to as a marketplace provider tax or internet sales tax, is intended to address the growing competition that brick-and-mortar businesses face from online retailers and generate additional revenue for the state. However, it has faced resistance from the internet industry and Republicans in the state legislature. In addition to this proposal, Governor Cuomo has also introduced initiatives to provide affordable internet access to low-income families and bridge the digital divide in schools.
| Characteristics | Values |
|---|---|
| Name | Cuomo's Internet Sales Tax |
| Objective | Change the way sales tax is collected over internet transactions |
| Target | Third-party marketplace providers like Amazon, eBay, and Etsy |
| Nature of Target | Exempt from collecting and remitting New York sales tax on some transactions |
| Type | Marketplace provider tax |
| Previous Attempts | Yes, but failed due to resistance from the internet industry and Republicans in the state Legislature |
| New York Tax Law Exemption | Email services qualify as taxable telephony or telegraphy service under New York Tax Law § 1105(b)(1) |
| ITFA | The gross receipts tax on transportation and transmission corporations cannot be applied to revenues from asymmetric digital subscriber line and fiber broadband services |
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What You'll Learn
- New York state tax laws now reflect the Supreme Court ruling on taxing internet sales
- Businesses must collect and remit sales taxes for online transactions
- Cuomo's budget proposal includes a 'marketplace provider tax'
- The internet tax advantage will be eliminated
- The 'Amazon Law' expands the definition of 'nexus' to include independent in-state websites
New York state tax laws now reflect the Supreme Court ruling on taxing internet sales
In 2014, the U.S. Supreme Court gave states the go-ahead to collect taxes on online sales, allowing them to claim billions in sales taxes that had previously gone uncollected on internet purchases. This ruling was significant as, for decades, online retailers had relied on a 1992 Supreme Court ruling to avoid sales tax collection in states where they had no physical presence.
In 2018, the Supreme Court further widened the reach of sales tax for online retailers, determining in South Dakota v. Wayfair that states may collect taxes on internet sales even when purchases are made from out-of-state retailers. This ruling was a "big win" for Main Streets across America, according to Marty Jackley, South Dakota's attorney general, as it would help local businesses compete with online retailers.
Following the 2018 Supreme Court ruling, New York issued a notice that its state tax laws would now reflect the new standard set by the ruling. As a result, businesses are now responsible for collecting and remitting sales taxes for online transactions, even if they don't have a physical presence in the state, as long as they meet certain sales thresholds.
In line with these developments, New York Governor Andrew Cuomo has included a proposal in his executive budget to eliminate the internet tax advantage, which exempts internet third-party marketplace providers like Amazon from collecting and remitting state sales tax on some transactions. This proposal, referred to as a "marketplace provider tax" or "internet sales tax", would require third-party retail sites to collect and remit sales taxes when a buyer in New York purchases something from a retailer on their site. While this proposal has been included in previous Cuomo budgets, it has faced resistance from the internet industry and Republicans in the state legislature. However, with a Democratic-controlled state legislature and the recent Supreme Court ruling, the measure is more likely to pass this time.
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Businesses must collect and remit sales taxes for online transactions
Gov. Andrew Cuomo has proposed changes to the way sales tax is collected over internet transactions, specifically targeting the internet tax advantage, a loophole that exempts third-party marketplace providers like Amazon from collecting and remitting sales tax on some transactions. This proposal, known as a marketplace provider tax, would require these third-party sites to collect and remit sales taxes when a buyer in a specific state or territory purchases something from a retailer on their site.
This change would bring New York in line with several other states that have already implemented similar measures. For example, in 2018, the U.S. Supreme Court's decision in South Dakota v. Wayfair, Inc. gave states the right to require tax collection from online retailers and other remote sellers without a physical presence in their jurisdiction. This ruling acknowledged the need for a safe harbor for small sellers, exempting remote sellers below certain sales thresholds.
Businesses operating online must be diligent in understanding their tax obligations to ensure compliance with various state regulations. Sales tax laws differ across states, and businesses must determine the specific requirements for each jurisdiction, including registration, tax amounts, collection, and record-keeping. While some platforms, like Amazon and eBay, collect and remit taxes on behalf of sellers, businesses must recognize their own responsibilities, especially when selling through multiple channels or offering specific product types.
To facilitate compliance, businesses can leverage sales tax software that offers real-time tax calculations, automatic filing, and detailed reporting. These tools can integrate with existing accounting software and accommodate various business models, including the sale of physical products, digital goods, or services across multiple states. By staying informed and utilizing appropriate tools, businesses can avoid penalties and financial issues stemming from incorrect tax collection.
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Cuomo's budget proposal includes a 'marketplace provider tax'
Governor Cuomo of New York has included a marketplace provider tax in his budget proposals since 2015. The tax would require third-party retail sites, like Amazon, eBay, and Etsy, to collect and remit sales taxes on purchases made by buyers in New York State. Under current law, sellers are required to collect and remit tax on sales made to New York customers. The marketplace tax would shift the burden of collecting and remitting sales tax from the seller to the marketplace provider.
Cuomo's proposal would amend the sales tax statutes to require marketplace providers to collect and remit sales tax on sales to New York customers. This would eliminate the internet tax advantage, a loophole that exempts internet third-party marketplace providers from collecting and remitting New York sales tax on some transactions conducted over their sites. By closing this loophole, Cuomo's proposal would bring in an additional $390 million annually for local governments.
The marketplace provider tax would only apply to marketplace providers with nexus to New York under the Commerce Clause. This could have a significant effect on e-commerce companies, reminiscent of the impact of the click-through statutes. Marketplace providers would be required to collect tax as if they were the vendor. If a marketplace provider does not provide a collection certificate, but uses language approved by the Division of Taxation and Finance in a publicly available agreement, that will have the same effect as providing a collection certificate.
Cuomo's budget proposal for the 2017-2018 fiscal year would have required marketplace providers that facilitate at least $100 million in New York sales each calendar year to collect sales tax from New York consumers on behalf of their marketplace sellers. This proposal was reintroduced in the 2018-2019 budget but failed to pass without the united support of both chambers of the Legislature. In 2019, Cuomo again proposed a marketplace provider tax, this time suggesting that revenue from the tax could make up for cuts to AIM funding for towns and villages. This proposal was included in the final budget for the 2020 fiscal year.
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The internet tax advantage will be eliminated
Gov. Andrew Cuomo's proposal to eliminate the internet tax advantage in New York State aims to address the competition faced by brick-and-mortar businesses due to online retailers. The internet tax advantage has been a loophole that exempts internet third-party marketplace providers, like Amazon, from collecting and remitting state sales tax on certain transactions conducted on their platforms. Cuomo's proposal, referred to as the "marketplace provider tax" or "internet sales tax", intends to eliminate this advantage and establish a new framework for collecting taxes from these marketplace providers.
Currently, online retailers with a physical presence or "nexus" in New York are required to collect and remit state and local sales taxes. However, the internet tax advantage has allowed some online retailers without a physical presence in the state to avoid paying sales taxes, creating an uneven playing field for traditional businesses. By eliminating this advantage, Cuomo's proposal seeks to level the field for all businesses and generate additional revenue for local governments.
The proposal specifically targets sales on platforms that aren't already subject to New York sales tax collection. This means that online retailers that only have a virtual presence in the state, such as through independent in-state websites or affiliates used to promote sales, will now be responsible for collecting and remitting sales taxes. This change is expected to bring in an additional $390 million annually for local governments, according to Cuomo's budget proposal.
The push to eliminate the internet tax advantage in New York is not an isolated effort. More than a dozen states have already implemented some version of a marketplace provider tax, with several of them doing so after a significant Supreme Court ruling in June 2018. The ruling set a new standard by stating that businesses are responsible for collecting and remitting sales taxes for online transactions even if they don't have an in-state presence, as long as they meet certain sales thresholds. This ruling provided constitutional grounds for the implementation of the marketplace provider tax and made it more inevitable for states to adopt similar measures.
While there has been resistance to the idea of taxing internet access in the past, with the Internet Tax Freedom Act (ITFA) imposing a moratorium on new state and local taxes on monthly internet access fees, the current proposal focuses on sales tax collection from online retailers rather than directly taxing internet access. This distinction is important as it addresses the competition concerns of traditional businesses while also recognizing the integral role of the internet in modern life.
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The 'Amazon Law' expands the definition of 'nexus' to include independent in-state websites
In 2008, New York passed the "Amazon Law," which amended the state's tax code to expand the definition of "nexus" to include independent in-state websites or affiliates used by out-of-state retailers to promote sales. This law targets online retailers that aren't already subject to New York sales tax collection, such as third-party platforms like Amazon, which facilitate transactions between buyers and sellers.
The Amazon Law aims to address the growing competition faced by brick-and-mortar businesses due to the tax advantage of online retailers. By expanding the definition of nexus, New York can now require online retailers with a nexus in the state to collect and remit sales taxes. This change levels the playing field for local merchants and online sellers that already collect sales taxes, reducing the competitive disadvantage they face.
The law does not impose a new tax but helps states collect taxes already legally due on internet purchases. While consumers are supposed to pay the tax directly to the state, requiring the seller to charge the tax is a more effective way to obtain the revenue. This approach is particularly relevant for large internet merchants with affiliate programs, as it helps address the issue of untaxed internet sales.
The Amazon Law has faced legal challenges, with questions about its constitutionality and whether it imposes duties on remote sellers without a sufficient nexus to the state. However, it has been upheld by courts, and similar laws have been introduced in other states, such as Rhode Island, California, Hawaii, and North Carolina. The Supreme Court's ruling in South Dakota v. Wayfair, Inc. in 2018 also supported this approach, overturning the physical presence rule and allowing states to require sellers without a physical presence in the state to collect sales tax.
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Frequently asked questions
The Cuomo Law, or the marketplace provider tax, is a law that changes the way sales tax is collected over internet transactions. It eliminates the internet tax advantage, a loophole that exempts internet third-party marketplace providers like Amazon from collecting and remitting New York sales tax on some transactions conducted over their sites.
The Cuomo Law was proposed to address the growing competition that brick-and-mortar businesses face from online retailers. It aims to level the playing field by ensuring that all businesses, including online retailers, are responsible for collecting and remitting sales taxes for transactions made in New York State.
The Cuomo Law expands the definition of "nexus" to include independent in-state websites or affiliates used by out-of-state retailers to promote sales. This means that any online retailer with a physical presence or nexus in New York, such as brick-and-mortar property or in-state employees, is required to collect and remit New York state and local sales taxes.
