Spitzer Abandons Amazon Tax

In a second major policy reversal in less than a day, Governor Spitzer is backing down from a plan to require Amazon.com and other online retailers to charge state and local sales taxes on all purchases from New York.

Yesterday, just hours after The New York Sun reported on the new revenue collection scheme, the Spitzer administration announced that it was burying it for the time being — at least until after the Christmas shopping season. The move saved New York City shoppers from having to pay an additional 8.375% on many Amazon.com goods.

"Governor Spitzer believes that now is not the right time to be increasing sales taxes on New Yorkers," Mr. Spitzer's budget director, Paul Francis, said in a statement. "He has directed the Department of Tax and Finance to pull back its interpretation that would require some Internet retailers that do not collect sales tax to do so."

The turnabout came just hours after Mr. Spitzer said he was dropping his plan to allow illegal immigrants in New York to obtain driver's licenses.

In this latest instance, Mr. Spitzer wasted little time before pulling the plug on another controversial policy, aborting it before it threatened to snowball into a distraction for his administration.

Before Mr. Spitzer announced his retreat, Albany Republicans, who turned the license issue into a potent rallying cry against the governor, were drawing up plans for a fresh wave of attacks. Lawmakers said they were planning to seize on the tax policy as evidence that the governor had reneged on his pledges not to raise taxes.

Some were comparing the so-called Amazon Tax to the controversy that erupted in 1992 when New York tax agents staked out parking lots at New Jersey malls and scribbled down the license plates of New York customers taking advantage of the Garden State's lower taxes.

The Spitzer administration, which is facing a $4.3 billion deficit next year, was attempting to collect tens of millions of dollars in lost revenue from unreported use taxes from New Yorkers who shop at out-of-state online retailers, such as Amazon.com.

The policy would have forced Amazon.com to collect sales taxes by redefining what constitutes having a sufficient physical presence in New York.

The administration's new tax strategy was also bound to face legal challenges by online retailers challenging the state's interpretation of its sales tax nexus laws that define whether retailers have enough of a business presence in state that its liable for collecting local taxes.

"We are going to call it the Grinch tax," a Republican senator of Long Island, Dean Skelos, said. "It's outrageous that he's trying to push this through right before the Christmas and Chanukah season. He's just doing it on his own like he tried to do with driver's licenses for illegal aliens — without consulting with the Legislature, without really consulting with the public."

Told that Mr. Spitzer had changed his mind, a spokesman for Mr. Skelos said: "'How the Grinch Stole Christmas' does have a happy ending."

Mr. Francis, in an interview, said the governor was unaware of the new tax policy, which the tax department quietly issued with a memorandum on Friday. It was supposed to go into effect next month, in time for the holiday shopping rush.

"The governor really wasn't aware of this. My focus is to raise revenue, and the governor has a broader perspective," Mr. Francis said. "It's a big government, and in hindsight, we probably should have made sure he focused on it. It's one of those things, so you live and learn."
Under the now-scratched policy, out-of-state online retailers that employ third-party affiliates for directing traffic to their sites would have been required to collect sales taxes from New York customers.

Amazon.com has thousands of affiliate programs with Web site owners who post links to the retail company and earn commissions when visitors click on them. The Spitzer administration, in effect, wanted to treat those affiliates like sales representatives.

Since some of those affiliates are based in New York, the tax department was arguing that the retailers had a physical presence in the state and therefore were liable for collecting the taxes. New York would have been the first state to impose such a strict interpretation of sales tax nexus law.

When Mr. Francis spoke to the Sun on Tuesday, he defended the stricter enforcement of the tax code as a way of "leveling the playing field" among online retailers and New York businesses. "It's not a new tax; it's simply collecting an existing tax," he said.

Despite his statement, Mr. Francis yesterday said he hadn't changed his view of the policy. "I don't regard it as a tax increase. It's only a tax increase to the person who is paying it," he said.