A new report from the United States based Tax Foundation indicates that more U.S. states are considering enacting ‘Amazon tax’ laws to force online retailers to collect sales taxes. Currently New York, Rhode Island, North Carolina and Colorado have enacted such laws.
While such states may be motivated by the promise of more tax revenues they can use to combat various budget problems, any cash windfalls are likely to be short-lived and, in the long run, taxing online sales will likely do more harm than good. Online retailers have already shown their propensity to pull their affiliate programs out of states that introduce Amazon tax laws (see LINK) and this only ends up hurting affiliate marketers in those states and ultimately the states themselves.
The Tax Foundation’s tax counsel, Joseph Henchman has aptly titled the Tax Foundation’s report “‘Amazon Taxes’ Will Worsen Budget Problems, Deter Business”. ‘Amazon tax’ laws force online retailers – the most renowned being Amazon – to collect tax sales on sales made by affiliates who reside in the state in question. The rationale behind the laws is that offline or ‘bricks and mortar’ retailers operating in a given state would normally collect sales tax on the sales they make so why shouldn’t online retailers whose affiliates are located in a given state?
Firstly, the state legislatures are simply not comparing apples to apples. There is a vast difference between an offline retailer operating in one state, and an online retailer with hundreds or thousands of affiliates operating in many states and, indeed, countries. While an offline retailer may be quite capable of assessing, collecting and paying sales tax on its sales (an administrative burden in itself), an online retailer with affiliates in numerous states must have systems capable of calculating the various different sales tax bases and rates that apply in the different states. And, of course, imposing new sales taxes will also force online retailers to raise their prices.
So what, you might say. Companies such as Amazon can afford to implement such systems and forcing them to charge higher prices will put them on a ‘fairer’ footing with their offline competitors. Well, not when companies like Amazon spit the dummy and simply pull their affiliate programs out of the states that introduce such laws!
Guess who really suffers? YOU!
Yes, you the affiliate marketer who happens to live in a state that has implemented, or plans to implement an Amazon tax law.
Who else suffers? How about the states who introduce these laws. More importantly, the residents of those states.
Not only are some of these state governments freely spending tax payers’ money to defend lawsuits challenging the constitutionality of their laws, but, according to Joseph Henchman, there are signs the laws aren’t even brining in the hoped-for cash injections! Rhode Island, it seems, has actually seen a DROP in income tax collection due to the introduction of its Amazon tax law.
Let’s hope some of the states considering enacting an Amazon tax law see sense and drop such plans… and it’s not too late for New York, Rhode Island, North Carolina and Colorado to abandon their laws too.
Source: Joseph Henchman, “‘Amazon Tax’ Laws Signal Business Unfriendliness And Will Worsen Short-Term Budget Problems More States Considering Affiliate Nexus Tax Despite Failures in Other States,” Tax Foundation Special Report No. 176