The issue of when online retailers should be made to collect sales tax came to the fore last week after New York State first issued a memo that clearly stated that any out-of-state e-tailer that has an affiliate working on its behalf in New York State needed to begin collecting sales tax starting December 7. Later in the week, however, New York's budget director reversed the decision, explaining that New York governor Eliot Spitzer believes “that now is not the right time to be increasing sales taxes.”

The turnabout met with an immediate protest from the ABA, whose CEO, Avin Domnitz, sent a letter to Spitzer's office calling the reversal “outrageous.” The ABA, as well as other traditional retailers, have continually emphasized that requiring e-tailers to collect state tax where they have a nexus is not a new tax, but simply the enforcement of existing tax laws. The ABA, along with the Northern California Independent Booksellers Association, have been pressing the issue for about nine years. NCIBA director Hut Landon had hoped that the ruling in New York State would pressure the California Board of Equalization, which many people believe is close to requiring out-of-state e-tailers to collect sales tax, to finally move forward.

A decision on just what constitutes “nexus” has been a major factor preventing states from collecting sales tax from out of state e-tailers. In its memo, the New York Taxation and Finance Department gave a liberal interpretation to nexus; according to one example, if an author in New York has a buy-the-book link on his Web site to an out-of-state e-tailer, that e-tailer would have nexus in NewYork. Such a scenario would seem to mean Amazon would need to collect sales tax in all states that have a tax and where Amazon has an affiliate program. Currently, Amazon collects sales tax only in the four states where it has a physical presence. Amazon's stance is supported by the Direct Marketing Association, which called the interpretation in the memo “an overreach of authority” that sought to “impose a legally questionable tax collection responsibility just as companies are headed into the all-important holiday season.”