Last spring, we reported on a New York Court of Appeals decision that required non-resident sellers offering products through a New York-based website to collect New York sales taxes on sales made into the state. That decision will stand, as the U.S. Supreme Court has denied review of the case.
According to the initial state court decision, out-of-state sellers are required to collect New York sales tax even though the seller has no presence in New York, except for listing products and services on a New York-based website. The Court of Appeals held that “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.”
What does this mean for small businesses? If a small business lists its products and services on a New York-based website, that small business will be responsible for collecting and remitting New York sales taxes on any sales made through that website. Essentially, the small business would be subject to all sales tax collection and reporting requirements – it would be as if that business had an office or retail outlet in New York State.
We believe that some small Internet businesses will simply cut ties with New York websites to avoid this new compliance burden. For small businesses, the additional cost of collecting, reporting and remitting tax to multiple states in which they are not present is a real issue. We believe this poses an unreasonable burden on small businesses and will cause many small businesses to withdraw from interstate commerce.
With the Supreme Court’s refusal to hear this case, we anticipate more states will begin to require out-of-state providers of goods or services to submit to sales tax reporting requirements. While many national businesses already do collect sales taxes and file returns with multiple states and jurisdictions, this will prove both a formidable task and expense for many small businesses.
