Canadian Online Business Take Note: Internet Tax Case

"The world has changed dramatically in the last two decades... An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet."

This statement from the New York Court of Appeals in the recent decision in Overstock v. New York Taxation and Finance (PDF) paved the way for an interesting conclusion on the taxing power of New York State - and by extension, the sales tax that may be applied to many online sales, including sales by Canadian online business into the US market.

Traditionally, a state's taxing authority was based on "economic activities" by the seller, for example, through its employees or sales agents in that state. The question faced by the court in this case was whether click-through links on a "local website" (that is, a website owned by a local state owner) would qualify to establish "economic activities" in that state. For example, a link to Amazon from a local New York State website has