On March 28, 2013, the Court of Appeals, New York’s highest court, issued a decision in Overstock.com, Inc. & Amazon.com, LLC, et al., holding that New York’s “click-through nexus” statute does not violate the Commerce Clause or the Due Process Clause of the U.S. Constitution. As a result, an Internet vendor may be presumed to have nexus in New York, and be required to collect sales tax from New York customers, when a link to the vendor’s website appears on websites of New York residents who are compensated via a commission arrangement.
The New York law was amended in 2008 to provide a presumption that the definition of a “vendor,” required to collect New York State sales tax on sales to New York customers, includes an entity that enters into an agreement with a New York resident under which the resident refers potential customers, including via a link on a website, “for a commission or other consideration.” Amazon and Overstock challenged the facial constitutionality of that presumption.
The Court of Appeals found that it was rational for the state legislature to presume that New York residents who were compensated on a commission basis would seek to increase their business by soliciting New York customers, and that the ability to rebut the presumption through an annual certification “sensibly” placed the burden on the retailers to demonstrate the lack of solicitation activities.
One judge dissented, finding that the placing of links on a website was no more than advertising, and that the change in compensation method for such advertising—from a flat fee to a commission—does not change its essential nature.
This decision is important to all Internet vendors who have relationships with “affiliates” and other business partners, not only in New York but in other states that have enacted similar statutes. We note, however, that a lower court in Illinois has found a similar Illinois statute unconstitutional, and an appeal of that decision is pending before the Illinois Supreme Court. The U.S. Supreme Court may yet have to weigh in on this issue.