Call it New York’s nationwide tax grab. Living up to its distinction as one of the most heavily taxed states in the nation, the Empire State has found a new way to subject its citizens to even more taxes. New York tax officials are looking to fill budget shortfalls by looking beyond state borders. As part of its budget, New York passed a first-of-its kind law that saddles sales tax collection burdens on catalog and online retailers in every state of the country.

As of this month, Assembly Bill 9807 requires out-of-state retailers who sell products to New Yorkers to register as vendors with New York tax officials. Civil and criminal penalties now face retailers who fail to comply. What’s more, out-of-state retailers refusing to register have already been threatened with possible auditing and charges for years of back taxes.

The new law zeroes in on out-of-state online retailers who pay a small sales commission to New York-based Web sites hosting online ads. Under AB 9807, a mere Internet ad banner placed on a New York-based site triggers tax collection obligations under the new law.

Needless to say, this new sales tax law has glaring constitutional problems. States are barred from placing undue burdens on interstate commerce. In Quill Corp. v. North Dakota (1992), the U.S. Supreme Court held that corporations lacking a physical presence within a state cannot be subject to its sales and use taxes requirements. Corporations that reach customers only through common-carriers, the mail, or software licensing agreements can’t be subjected to tax collection burdens.

The Supreme Court left Congress latitude to address the issue of interstate tax burdens. A pair of bills now floating in Congress would do that. But Congress has considered similar bills in the past and so far declined to pass any of them.

Amazon.com has challenged AB 9807’s constitutionality in New York State Court. Although Amazon has no physical presence in New York, it runs an “Associates Program,” for Web site owners to place Amazon ads. The independent advertisers earn a small amount for each referral to Amazon. Those online ad referrals are snagged by AB 9807’s taxation tripwire.

In late May, Utah-based online retailer Overstock.com filed its own lawsuit, asking a New York State Court to stop the tax from being enforced. Overstock has an associate advertising program similar to Amazon. But to avoid taxes and penalties under AB 9807, Overstock notified more than 3,400 New York based affiliate advertisers that they could no longer provide ads for Overstock as of June 1.

New York’s de facto interstate sales tax has many other states frightened. A few states provide limited protection from out-of-state tax administrators through special declaratory judgment actions in their own state courts. Virginia, Texas, and Iowa allow in-state corporations to get a local court determination on whether they are properly subject to an out-of-state tax collector’s demands. It’s likely other states will consider such legislation in their next sessions. Also, some corporations could simply decide to stop dealing with or selling to New Yorkers to avoid tax collection burdens.

On the other hand, other states could be joining ranks with New York by expanding their own taxing powers. Bill 1840 in the California Assembly would eliminate clear rules exempting out-of-state retailers from tax collecting exemptions burdens. California tax bureaucrats would be empowered to expand state sales tax jurisdiction. Retailers would face the costly uncertainties of administrative proceedings and litigation.

Given the flatly unconstitutionally nature of AB 9807, maybe New York’s interstate tax grab might really be a tax smash-and-grab. It may be a long while before Amazon’s court case brings New York’s new tax on out-of-state online retailers to a grinding halt. But in that window of time, New York could find itself benefiting from ill-gotten gains along with any other states that decide to join it.

Mr. Cooper is the director of the Telecommunications and Information Technology Task Force, and Mr. Williams is the director of the Tax and Fiscal Policy Task Force for the American Legislative Exchange Council in Washington, D.C.­ — the nation’s largest nonpartisan, individual membership organization of state legislators.