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Amazon Fights Back Against Taxes

1 Jul, 2009 By: Chris Tribbey


Amazon.com has cut ties with its “Associates Program” affiliates in Hawaii, North Carolina and Rhode Island over those states’ online sales tax legislation, and Amazon promises California is next in line if that state goes forward with its proposed legislation.

Calling the new Internet tax laws “unconstitutional tax collection schemes,” letters to Amazon associates in Hawaii (June 30), Rhode Island (June 29) and North Carolina (June 26) read much the same, telling associates there that until those states repeal the laws (or in Hawaii’s case, Gov. Linda Lingle vetoes by July 15), Amazon won’t advertise there.

“In the event [the state] repeals this tax collection scheme, we would certainly be happy to re-open our Associates program to [the state’s] residents,” the letters read.

Amazon’s Associates Program allows Web sites to place Amazon advertisements on their Web pages and then earn money from Amazon purchases made as a result. But while the U.S. Supreme Court has ruled retailers do not have to pay taxes in states where they have no physical presence, legislation by these states and New York are getting around the ruling by establishing a retailer’s presence in the state if they advertise there.

California and Assembly Bill 178 are next, and, in a letter to Gov. Arnold Schwarzenegger and state legislators, Paul Misener, Amazon VP for global public policy, asks that the bill be opposed, in favor of a multistate “streamlined” sales tax.

“It is unconstitutional and would not be an effective source of revenue,” Misener writes. “The approach of AB 178 is unconstitutional because it ultimately would require sellers with no physical presence in California to collect sales tax merely on the basis of contracts with California advertisers.”

Fred Nicely, with the Council on State Taxation in Washington, D.C., said states enacting online sales tax laws are shooting themselves in the foot.

“It shows how dangerous this legislation is,” he said of Amazon severing ties with affiliates. “What you have happening is these states are going to not only lose the revenue the law was intended to get, but also the income tax revenues that these Amazon affiliates generated.”

Nicely said he believes these new state laws are unconstitutional, and that if California follows suit “it will have a huge impact.”

“Legislation needs to be worked out at the federal level,” he added. “That’s the appropriate tactic.”

That’s what Scott Peterson, executive director of the Streamlined Sales Tax Governing Board in Nashville, Tenn., is trying to do. His group is attempting to streamline online tax rules across the country, signing up states and retailers in an effort to simplify tax codes. Wisconsin is set to become the latest state to join the group July 1, Peterson said.

“[Amazon is] certainly within its right to conduct its business the way it sees fit,” he said

Peterson said he didn’t blame North Carolina, Hawaii and Rhode Island for trying to close budget shortfalls. “But the way the states are going about it doesn’t address the problem, which is the complexity of state sales tax laws,” he said. He estimated that California alone is missing out on roughly $2 billion in revenue from online sales tax. California is currently facing a budget gap of more than $24 billion.

Other estimates have the potential for online sales tax revenue nationwide at more than $3 billion.

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