Online retailers Amazon.com, Inc. (NASDAQ:AMZN) and Overstock.com, Inc. (NASDAQ:OSTK) teamed to fight against state sales tax in New York state. Reuters reports that the companies are making arguments against a 2008 state law that would force them to pay sales tax collected over the years.

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Just a little over two decades ago, the Supreme Court made a ruling that retailers cannot collect taxes on out of state purchases unless of course, the retailer has a presence in those selected states. Unfortunately for web retailers, New York found a way to collect sales tax anyway. New York claims that individual sellers or companies in the state which refer customers (either directly or indirectly) to the website should collect sales taxes.

Shortly after that law was passed, Amazon.com, Inc. (NASDAQ:AMZN) and Overstock.com, Inc. (NASDAQ:OSTK) started filing lawsuits. The stores claimed that web referrals don’t exactly mean a sales presence and instead compared referrals to news paper ads. Apparently, the New York state attorney opposed the e-retailers by reminding them that web referrals are different than advertisements as they lead users to make a direct purchase.

It’s important to note that previously, the lower courts took side with the state. Now, there are five appeal judges who are open to hearing Amazon and Overstock’s side of the story.

Some of the issues are centered around affiliate programs which involved webmasters posting links to Amazon on their website, which drives traffic back Amazon. Commissions are only made if the user purchases a product or service from Amazon.  Unfortunately, this has led Amazon.com, Inc. (NASDAQ:AMZN) to halt their affiliate programs in some states to avoid state taxes.

At press time, neither Amazon.com, Inc. (NASDAQ:AMZN), Overstock.com, Inc. (NASDAQ:OSTK), or New York  State of Taxation and Finance have made a comment on the matter. There is also no word on when we can expect the case to end.


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