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NY issues decision on Amazon case

 
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  #1  
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Join Date: December 17th, 2009
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NY issues decision on Amazon case

The NY appellate court put out a decision on Amazon today. It's basically a non-decision. The court agrees there may be some merit that the affiliate nexus tax violates the commerce clause and the due process clause of the Constitution, if Amazon can prove affiliates don't directly solicit sales to other New Yorkers.

That's a tough one for Amazon to prove, especially considering so many of their associates are religious groups, charities, schools, etc.

Our attorney feels the next step is that Amazon will file an appeal with the New York Supreme Court, not at all unexpected, and probably another step on their way to the US Supreme Court. Our attorney also made an interesting comment, that it probably only costs $1mm to try a case at the supreme court level, so it makes perfect economic sense for Amazon to keep going all the way.

At the end of the day, I'm not sure what the bearing of this decision will have on our industry. It may or may not encourage more states to consider legislation. This case has nothing to do with why we've beaten it back in 15 states. Even if it passes, merchants can terminate affiliates to avoid collecting sales tax. When affiliates show up and demonstrate that to legislators, it makes it very hard to pass this law.

A copy of the brief is on our blog: New York Publishes Decision on Amazon Appeal*|*Performance Marketing Association
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  #2  
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I haven't had a chance to examine the decision yet, but some clarification of your summary is necessary:

1) Unlike in the Federal system and in virtually every state in the US except New York, in New York it is the lower court level - the trial court level - that is called the Supreme Court, and the highest appellate court is called the New York Court of Appeals;

2) Appellate courts do no hold trials, they only review (with the limited exception of a very few matters that by law may go directly to appellate court review) decisions of lower courts. Any eventual trial in this matter would be held in the NY Supreme Court, but again, that is the court of original jurisdiction, the trial court level;

3) At this point, I do not know why you would link a brief (I haven't looked at your link) but here is the Decision of the New York Supreme Court First Appellate Division in Amazon.com, LLC v New York State Dept. of Taxation & Fin.
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  #3  
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Thank you for the clarification - I meant decision, not brief.
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  #4  
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The court stated clearly that the law does not - on its face - violate the Commerce Clause of the US Constitution, by assuming without any real discussion that NY-based affiliates are agents of the out-of-state vendors, Amazon and Overstock:

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Quote:
"Our analysis leads us to the conclusion that on its face the statute does not violate the Commerce Clause. It imposes a tax collection obligation on an out-of-state vendor only where the vendor enters into a business-referral agreement with a New York State resident, and only when that resident receives a commission based on a sale in New York. The statute does not target the out-of-state vendor's sales through agents who are not New York residents. Thus, the nexus requirement is satisfied."
The court went on to validate its determination by referring to the "escape hatch or safe harbor" added to the law, that the vendor merely has to include in its affiliate agreement "a provision prohibiting the in-state representative from 'engaging in any solicitation activities in New York State that refer potential customers to the seller'".

The court then went on to make some, in my opinion, totally unwarranted assumptions: "On the other hand, the State has a legitimate basis to conclude that many other in-state representatives will engage in direct solicitation, rather than mere advertising.", apparently basing this on Amazon's tiered fee structure, rewarding affiliates with higher commission levels from higher performance, concluding as follows:
Quote:
"Clearly, Amazon's program, reasonably, is not designed for the passive advertiser, but seeks growth by reliance upon representatives who will look to solicit business."
The court basically repeated the same faulty, unsubstantiated logic in reaching similar conclusions concerning arguments made under the Due Process clause of the US Constitution.

Despite all of that the bottom line of this decision is the following:

They in effect reversed the decision of the lower court dismissing the complaint, and while they have stated strongly that on its face the statue does not violate the Commerce Clause, Due Process, or Equal Protection, that facts are needed to determine if the statute as applied to these plaintiffs (Amazon and Overstock) is or is not Constitutional, so the matter is remanded back to the trial court for discovery.

It is unlikely that the highest NY appellate court - The New York Court of Appeals - would accept an appeal of this ruling. The matter must now go back to the trial court level for discovery, and further proceedings, possibly new Motions for Summary Judgment, or even trial on the merits. Only then will the issue be subject to appellate review.

All in all, as the court saw fit to reverse the dismissal of the complaint and refer to back for discovery and other proceedings, I see this as a MAJOR VICTORY for affiliates, regardless of the unsupported assumptions made by the Court as described above.

As to timing, the case likely will now spend one to two years back at the trial court level.
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Last edited by Phil Kaufman aka AffiliateHound; November 4th, 2010 at 08:24 PM. Reason: clarification
  #5  
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notary sojac
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@affiliatehound: thanks for the link. It fills in some blanks for me.
  #6  
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Truthfully, AH, there's SOME merit to:

style="margin:20px; margin-top:5px; ">
Quote:
"Clearly, Amazon's program, reasonably, is not designed for the passive advertiser, but seeks growth by reliance upon representatives who will look to solicit business."
Every time I direct someone to my kayak fishing website that I meet out on a pond here, in theory, I'm actively promoting affiliate ads to New Yorkers.

Is it enough to presume Nexus? I don't know. We'll have to wait and see.
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  #7  
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Quote:
Originally Posted by AffiliateHound View Post
All in all, as the court saw fit to reverse the dismissal of the complaint and refer to back for discovery and other proceedings, I see this as a MAJOR VICTORY for affiliates, regardless of the unsupported assumptions made by the Court as described above.
I actually felt the exact opposite. It seemed to me that the court was saying that the law was not unconstitutional on its face but that it would give the merchants the CHANCE to prove that it is not unconstitutional as applied. But the court made a couple of different comments that you could interpret as saying that it didn't believe that the merchants would really be able to prove no solicitation is made. The court opined that the safe harbor certification provision is not too arduous and would merely be a cost of doing business if the merchants chose to allow in-state affiliates.

To me, the whole thing comes down to that key word of "solicitation" and how everyone on both sides is going argue how it should be interpreted. Realistically most affiliates actively target in some way business in their states. Especially big affiliates with membership basis and newsletters.
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  #8  
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The lower court dismissed the complaint, ending the right to challenge the law.

The Appellate Court reversed the dismissal and has given the plaintiffs the right to provide facts sufficient to substantiate their position that that law is unconstitutional as applied.

That sounds like a victory to me.
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  #9  
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Quote:
Originally Posted by AffiliateHound View Post
The lower court dismissed the complaint, ending the right to challenge the law.

The Appellate Court reversed the dismissal and has given the plaintiffs the right to provide facts sufficient to substantiate their position that that law is unconstitutional as applied.

That sounds like a victory to me.
But look at these statements the court makes:

"Solicitation, however, in varying forms, is another extremely plausible and likely avenue by which any competent businessperson would seek to improve revenues."

"The existence of Amazon's SchoolRewards and similar programs is strong evidence that the presumption is valid."

"Even 1.5% of New York sales by New York Associates, however, would not appear to be an insignificant number."

Although the court didn't rule against Amazon, I think it was only because the standard at this level was that the case should only have been dismissed if there was no material issue of fact or law and the bottom line was that there was a material issue of fact because not enough evidence was presented at the trial level. But the court seems to be saying that if evidence HAD been presented that affiliates solicited sales in-state and Amazon was making even 1.5% of its New York revenue as a result of the affiliate program, the court would have ruled against Amazon.
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  #10  
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The court reinstated the lawsuit ruling 5-0 that the "dismissal of the entire complaint was premature" and that the lawsuit should continue.

Amazon won for the most part the decision is not, however, a complete victory, the judges ruled that, in at least some cases, the state law can be constitutional.

That leaves Amazons' other arguments--which are separate and still in play--that the statute remains unconstitutional as applied to the Internet and their businesses.



Further proceedings and evidence are necessary "before a determination can be rendered" on that point, the appeals court said.
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  #11  
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Thanks Bob, its good to see someone in-state keeping us updated.
  #12  
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The law, since April 2008, has generated $70 million in tax revenue from more than 30 online retailers.

Or about 3M a month!

Here's an interest issue if you're a merchant based in NY and offerring your goods thru Amazon and shipping to NY buyers Amazon DECLINES to collect sales tax.

They reply that it's not their responsibility, build it in your selling price.

But hey their Amazon!!!!

We are no longer selling on Amazon
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Last edited by PetsWarehouse.com; November 18th, 2010 at 08:12 AM.
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