BIG Breaking News! While I gave Overstock a seriously hard time over dropping their New York affiliates – now I need to give them a HUGE thank you on behalf of the affiliate marketing industry for their latest move!

We really needed another major retailer to challenge this law as Amazon did and now we have it! Overstock just announced yesterday, they filed their own suit.

“The complaint filed in the New York Supreme Court calls upon the court to issue an injunction and to declare the law unconstitutional.”

Can’t believe I broke this story and no one in the industry has blogged it yet. Then again, I’m overly obsessed and constantly scouring the net for news on this issue. I think this could help us even more than the Amazon suit, for a variety of reasons. Hopefully I can help spread the word to let people know. I’ll get a twit and an email out to key people in the industry who I’m working with on this issue.

We are coordinating a New York Tax panel discussion for next week’s Affiliate Marketing Insider Radio show. Maybe I can get Overstock legal to be on the show and comment on their stance with affiliates and this suit.

Overstock.com Challenges Constitutionality of New York’s Internet Tax Law

SALT LAKE CITY, May 30 Press Release — Overstock.com, Inc. (Nasdaq: OSTK) announced today that it has filed a lawsuit challenging New York’s new tax law that requires internet retailers to collect and pay to the New York state tax on their New York sales despite the fact that the retailer has no physical presence or nexus in New York.

The controversial new law attempts to redefine the relationship that internet retailers have with their New York-based advertising affiliates by requiring that when those affiliates solicit customers, the internet retailers collect and pay sales and use tax from all their New York customers.

Overstock.com, which is based only in Utah, has no operations in New York, and sells exclusively through the internet, views the new law as unconstitutional under both New York and federal constitutional provisions, including due process clauses under both constitutions and the commerce clause of the U.S. Constitution as well. The complaint filed in the New York Supreme Court calls upon the court to issue an injunction and to declare the law unconstitutional. It names as defendants in the suit the New York State Department of Taxation and Finance, and Tax Commissioner Robert L Menga and Governor Paterson in their official capacities as state officers.

On May 15, 2008, Overstock.com announced it had notified more than 3,400 New York-based affiliate advertisers that as of June 1, 2008 they could no longer provide advertising for Overstock.com owing to the application of this law. If it had not taken the action, on June 1, the controversial new law would have required the company to collect an up to 8.75% sales tax on all its sales to New York customers. If the company’s legal challenge succeeds, the company anticipates it will return to state’s internet advertising affiliates.

“We love New York,” said Patrick Byrne, Overstock.com chairman and chief executive officer. “But, we had to choose our New York customers over the New York tax collector armed with an unconstitutional statute.”

“I am confident of our position in the suit,” said Mark Griffin, Overstock.com general counsel. “The applicable United States Supreme Court cases on the question of whether the state can collect taxes under these circumstances make it clear that New York cannot constitutionally require Overstock.com to collect these taxes.”

The company is the second large internet retailer to challenge the law. Amazon.com filed suit previously, alleging similar claims.

UPDATE SUNDAY 6/1 Other coverage about the Overstock suit:
Overstock Sues New York Over Affiliate Tax Affiliate Tip
Overstock sues New York over Net sales tax law CNET
Overstock.com sues New York over Internet tax law Reuters