Newegg backpedals, stops charging NY sales tax

Less than three months after starting to collect sales tax in the state of New York, Newegg backtracked and stopped the practice last Thursday. The company has sent its customers an e-mail announcing the move, and TR member FireGryphon has posted that message in our forums. Here's an excerpt:

As a result of recent changes in New York State tax law requiring certain out-of-state retailers to collect and remit sales taxes to the State of New York, we began collecting applicable sales tax for all orders shipped to New York addresses starting June 1, 2008.

After careful review and consideration, we are pleased to inform you that we have stopped collecting New York sales tax, effective August 21, 2008. This decision was driven by your direct and candid feedback and our continued commitment to you as our valued customers.

As we learned in May, Newegg's initial decision to start collecting sales tax hinged on its relationship with advertisers. Current New York tax legislation (PDF) requires out-of-state businesses who "solicits sales of taxable tangible personal property or services through . . . independent contractors, agents, or other representatives located in New York State" to collect sales tax. In stark contrast, rival e-tailer immediately decided to end its relationship with New York advertisers in order to avoid having to charge anything.

Since Newegg sponsors our system guide, we witnessed first-hand this shift in approach. The company had us sign an agreement saying we wouldn't actively solicit business or clicks on banners from New York residents. Also, we had to 'vouch' that we have no employees, contractors, or servers in New York.

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