Overstock.com has announced it will cut ties with its 3400 New York "affiliates" rather than collect sales tax for the State of New York.
The new law requires out of state Internet-based companies to collect sales tax for purchases made by New York residents, using the new legal theory that companies which allow a New York vendor to sell via their site have a "physical presence" in New York.
Overstock's Senior V.P. of Finance said, "We have no taxable connection to New York that is recognizable under constitutional principals [sic] 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."
This situation will become more and more interesting, as other states are said to be considering following New York's lead.
In California, with Governor Schwarzenegger turning his back on his "no new taxes" pledge and threatening a 1% sales tax hike -- which would raises sales taxes to 8.75% and 9.25% in Orange and Los Angeles Counties -- I wouldn't be a bit surprised if the same play for online taxes is made soon.