New York recently enacted tax law to capture “missing” revenue from online retail, even from companies not located in NY. The NY regulators determined that even though a company doesn’t have a physical presence in the state, they can be taxed if  they earn revenue from members of their affiliate network who are under Albany’s rule. A dubious expansion of the law,  the so called “Amazon Tax” has caused a lot of companies to complain and legal experts to salivate over the upcoming legal battles.

Instead of being pressured (by threat of back taxes), two companies decided to take a stand. The first company, Amazon.com, is taking the fight to the courts. The second one, however, calmly said, “Bring it”.

Overstock.com dropped all of their affiliates (3,400 in total) and service providers who are based in the state of New York. Finance VP, David Chidester, summed up their decision to play hardball in a company press release.

“We think the New York law makes no sense at all. We have worked to assure that Overstock.com has as small a tax footprint as possible because of the benefits it provides to our customers. We have no taxable connection to New York that is recognizable under constitutional principals laid down by U.S. Supreme Court decisions, and we will keep that status, even if it means having to say goodbye to some long time New York business connections.”

Others are also pointing out that affiliate sites operate as through a marketing agreement, not as agents of the company and therefore NY’s definition is flawed. The issue of taxing online retailers has been around since stores opened on the internet, but no one has proposed an enforceable solution yet. New York’s answer has some significant hurdles to clear if it is to become the model. I, for one, doubt it will go that far.

Kudos to Amazon and  Overstock for protecting their business interests and their customers (for now).