The Tax Foundation released a special report on Monday that indicates that the “Amazon Tax” laws signal business unfriendliness and will worsen short-term budget problems. Currently, four states (North Carolina, Colorado, Rhode Island and New York) have some form of a law that require Companies that have “affiliates” in their states to collect sales tax from their customers in that state.
For those that may be unclear as to exactly what an affiliate is, let me explain it as simply as I can and use Amazon.com as an example. Amazon allows other website owners to post links or advertisements to their products on their website. In exchange, Amazon pays those website owners a small commission on the products sales that this generates. Simply put, these website owners are basically providing a targeted advertising medium to Amazon. What the “Amazon Tax” law does is it requires Amazon (or other Internet retailers) to collect sales tax in a particular state, even if Amazon has no physical presence in that state.
As an example, let’s say that Suzy Customer lives in Raleigh, NC. She is reading the Century House SEO blog from Robert Enriquez who is physically located in Charlotte, NC. Robert is discussing a book that he recently read, and Suzy decides to buy it. Suzy follows the link to the Amazon.com website where she makes a purchase. Even though Amazon has no physical presence in North Carolina, the State of North Carolina expects a piece of the pie.
According to the report, Amazon taxes do not provide easy revenue for the states that have enacted them. In fact, the Amazon taxes that are in already in place have not produced any revenue to those states and there is evidence of lost revenue. This is because Company’s like Amazon have discontinued their affiliate programs in these states, the website owners in those states are now earning less income and paying less income tax than before.
Some additional key findings from the Special Report are as follows:
Amazon taxes are unlikely to produce revenue in the near term. New York continues to face a lengthy legal constitutional challenge. Rhode Island has even seen a drop in income tax collections due to the law.
Amazon taxes do not level the playing field between brick-and-mortar and Internet-based businesses because they require Internet-based businesses to track thousands of sales tax bases and rates while brick-and-mortar businesses need to track only one.
Unconstitutionally expansive nexus standards like the Amazon tax undermine legal certainty, burden interstate commerce, and harm economic growth.
Enacting an Amazon tax law sends a signal of hostility to businesses engaged in interstate commerce, runs the risk of retaliation from other states and from affect businesses, and undermines efforts to improve the uniformity of state sales taxes.
One of the biggest factors that proponents of the Amazon tax use is that it isn’t fair that these purchases go without tax, while brick-and-mortar businesses are required to collect tax – offering a competitive disadvantage. The fact of the matter is that even those these retailers are not required to collect sales tax on these sales, consumers are still legally required to pay use tax on those goods. The problem is that 99% of consumers do not do so. Certainly, looking at methods to enforce existing law would be better than passing new laws that have a negative effect on businesses within these states.