The Next Big Battle For Online Business; Sales Tax; California Becomes Latest State To Tax Online Sales & Amazon Cuts Affiliates Off

According to the Los Angeles Times a new California state law will require large out-of-state retailers like Amazon to collect sales taxes on purchases that their California customers make online.”

In response, Amazon and Overstock.com plan to cease paying commissions to California Internet marketing affiliates for referrals.

“About 25,000 affiliates live in California, especially larger ones with dozens of employees, are likely to leave the state, said Rebecca Madigan, executive director of trade group Performance Marketing Assn. The affiliates combined paid $152 million in state income taxes last year, she pointed out.”

“California is the seventh and largest state in the country to pass a law to collect taxes on out-of-state Internet sales.

“Illinois, Arkansas and Connecticut passed laws earlier this year, North Carolina and Rhode Island passed them in 2009 and New York in 2008. (Amazon has sued to overturn the New York law losing in the lower courts. The company is paying sales taxes into an escrow account pending an appeal).”

Last fall, Texas officials sent Amazon a tax bill for $269 million, after determining that the retailer’s Dallas-area warehouse, owned by a subsidiary, qualified as a local address under state tax rules. Amazon had argued for years that without stores and offices in the state, it had no obligation to collect sales tax there. The dispute is to be decided in a coming administrative hearing.

In retaliation for Texas’s move, Amazon said last month that it would close the warehouse next month and cancel plans to build another.

Actually in each state that has passed a sales tax on online purchases, Amazon has cut off the affiliates, and threaten to or moved distribution centers out of states passing the sales tax measures.

But as states are literally starving for additional revenue more and more states are going to want to tax online sales.

So the issue seems to be is how long can Amazon and other online realtors continue to punish states that enact sales tax measures?

In a few years how many states will be left that haven’t enacted sales tax on online sales?

Looks like just maybe a handful with small populations.

A national sales tax is the answer Amazon is pushing for but current the US federal government doesn’t even have a federal sales tax.  Federal government have valued added taxes and levies in many countries but a national sales tax seems just like another level of taxation as I doubt that any state will want to give up the revenue especially if they have already started to collect it.

Either way sales tax on online sales seems to be the next big issue for the Internet and its users.

and Amazon is going to run out of options when a state like Idaho becomes the only state not to require a sales tax to be collected on online sales

Comments

  1. says

    Just goes to show how slow the wheels move, sometimes.

    People have been anticipating a state-by-state online sales tax scheme as being “right around the corner” since 1999. Looks like the inertia has finally broken and once it moves, it will move fast, but it is kind of amazing that it’s lasted this long…

  2. says

    Rant:
    In EU, where sales tax/VAT currently sits at between 20% – 25%, companies like this relocated to tax havens years ago. LVCR and VAT related tax abuse has been completely rampant by the biggest firms and unchecked by incompetent, irrelevent or corrupt ‘authorities’. It leaves the small/medium co’s left behind competing with super bulk buyers and a 20%-25% handicap before we even go to work. We now see these otherwise sound firms collapsing into administration on a daily basis, their staff going onto welfare – which of course takes a triple whammy.
    I’m all for upscaling and wouldnt want to be the one standing in the way of progress but this kind of market abuse is generally not good for anyone in the long run, except maybe the perpetrators and cohorts themselves.

    The bill for this, if you hadnt noticed, is paid with pieces of paper that governments print ad nauseum and seem to be of diminishing convertibility daily.
    It struck me that although the price of domains is going up, the purchasing power of a $ is conversely plummeting. Personally Im currently investing, in order of importance, baked beans, domains and gold. It really suprises me that those sitting on heaps of actual millions of $$$s arent spending them like there is no tomorrow on solid stuff, or at least income bearing assets, before they are worthless. Sure keep some liquidity but what on earth are you gonna do with a vault full of worthless paper, its not even particularly suited to use in the bathroom. I guess theyll be the lucky ones compared with the people who’s main assets were just some pixels on a computer screen and an entry in an account database, at least you could have a nice bonfire. Hold on to your hats!

    I truly hope (suburban) Idaho did become the online retail capital. Its one of the most beautiful states, although Im not sure how much they’ll relish 25,000 Californians showing up at Diamond Lil’s ;)

  3. Lucy Chase says

    I don’t know why these companies are bothering to incur the expense of moving to another state. By that logic, they’re going to be running from state to state for a long time, because this sort of legislation will eventually be passed in most states. This is why states are broke. They’ve lost tons of sales tax revenue since people started shopping online. Once they figure out the logistics, no state is going to turn down the opportunity to plug the drain.

  4. says

    @LindaM, I think you are on target. :-)

    @Lucy Chase : Many small companies are moving due to the fact that they are affiliates for sites like Amazon. Imagine having a business that supports your family and maybe an employee or 10. You wake up one morning with an email in your inbox from Amazon.com telling you that you have been dropped as an affiliate.

    It’s devastating.

    So, as I sit here in Idaho, I still debate with myself regarding this issue. :-|

  5. says

    In these situations the state-hopping phase doesnt last long. One or more states or territories will in due course declare ‘safe harbor’ and enact the right laws to suit the corps, and enjoy the influx of business.

  6. says

    We have already contact my cousins in other states, just in case, Ohio should be that dumb and try to tax Amazon. I don’t want to lose 6 figures of income that I already pay income tax on. I’ll simply locate the business in another state under the cousin’s name.

  7. oldhat says

    ls morgan is right. this is an old issue that’s been looming for over a decade.

    but not every state is the same. each state has its own unique issues.

    for some states, they might like to have a company like amazon create heaps of jobs. they might not tax the company directly, but they take a chunk of every employee’s paycheck.

    amzn will survive this.

    lindam has realised some important truths about money. like domain names, it costs little to “create” and there’s a potentially unlimited supply.

    contrast this with tangible commodities that have inherent value to the owner.

    food can be eaten. coal can be burnt. clean water can be drunk. etc.

    but things like money and domain names rely on other people’s ideas about “value”. most of the world’s “money” is not printed. it’s an entry in a database somewhere. (kinda like a domain name, haha).

    if suddenly the banks had to return all of the “money” they hold on behalf of their customers, it would not be possible. because much of it does not even exist in physical form.

    the miracle of credit.

  8. domains says

    This is going be one big cluster fuck for businesses online, domainers and what needs to be collected, what dosent

    Leave it tax free. Let the internet grow and businesses prosper

    If states were to have different tax rates, do a 2 percent tax across all 50 states if need be. Make it easy. Or something like this

    Businesses will be pulling from cali. Jobs and impacted issues.

  9. Nick says

    Not enjoying my revenue drop in Connecticut, as it’s not only Amazon of course. It’s Overstock all the rest.

    I miss the Wild West days of the Internet.

    Except the pop-ups.

  10. Gazzip says

    “Personally Im currently investing, in order of importance, baked beans, domains and gold.”

    ———-

    lol, great little rant there LindaM :) , ^ this line cracked me up but I agree with it 100%, alot of economists think the dollar is almost done for thanks to Helicopter Ben and the Banksters.

    With $65 Trillion dollars owed (so far) it can only be tough times ahead and unfortunately the little folk will be the ones doing all the suffering.

    More taxes are inevitable.

    youtube.com/watch?v=Q-w-8fXzwQE

  11. says

    Ich fand Ihre Seite von Google und es ist ins Auge. Vielen Dank für die gemeinsame Nutzung einer solchen unglaublichen article … Ich Aprreciate die Mühe, sehr schöne und nützliche Artikel ..

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