Amazon.com sued the state of New York and its governor over its new tax law, called by some the "Amazon Tax." The law claims that Internet retailers with affiliates residing in New York must collect New York sales tax because those affiliates count as a physical presence, a claim Amazon rejects.

New York Tax Law § 1101(b)(8)(vi), enacted on April 9, 2008, requires affected businesses to register and start paying taxes by June 1st. State officials have projected the law would generate $50 million in the current fiscal year.

Amazon stated in its lawsuit that the Commerce Clause of the US Constitution prevents New York State from imposing tax-collection obligations on out-of-state entities absent a "substantial nexus" with the state.

Amazon argues that none of its in-state affiliates ("advertisers") has ever been considered an employee, independent contractor, agent, or other representative of Amazon under any provision of the tax law. Amazon states that its affiliate advertisers operate independently of Amazon, and "they alone choose the timing, format, and placement of the Amazon advertisements on their websites," nor do they solicit or consummate sales on behalf of Amazon.

Amazon also argues that while the New York statute was intended to impose tax-collection obligations on out-of-state Internet retailers such as itself, the statute would also impose these obligations on non-Internet out-of-state retailers who pay New York print media, TV or radio outlets to advertiser their products and thereby refer New York customers to buy them.

Note that the law affects companies that do more than $10,000 worth of business in the state.

A PDF file containing Amazon's lawsuit is available on Wired (http://blog.wired.com/business/files/amazoncomplaint.pdf).