Amazon Texas Internet Sales Tax

Just a few thoughts on Amazon’s tax deal with the Texas Comptroller.

First, both parties win. Amazon will not have to fork over the past Internet sales taxes the Texas Comptroller was demanding. The Lone Star State will get more jobs as Amazon expands its physical presence including commercial warehousing and distribution centers. The state will also get future sales tax revenues collected by Amazon from Texas residents.

Second, Amazon is not anti-sales tax. The company supports the federal monstrosity known as the Main Street Fairness Act.

Third, it is small business, not the Amazons, that get crushed by taxes and regulation.

Connecticut Internet Sales Tax Hurts Affiliate Marketers

What is the new Connecticut Internet Sales Tax supposed to do?

Connecticut has recently passed a bill which requires internet retailers to charge a sales tax on all goods sold in Connecticut if the internet retailer has a physical presence in the state.

Connecticut lawmakers considered the law necessary to hold Amazon.com and other online retailers accountable like all other businesses in the state. Lawmakers argue that it is not fair for Connecticut based ‘brick and mortar’ business to be subject to the state’s sales tax while Amazon.com is not. Aside from raising funds for the state in this time of economic uncertainty, the bill was also designed to protect Connecticut business from being unfairly outsold by online retailers not subject to the same tax laws.

Why did Amazon.com pull out of Connecticut?

The United States Supreme Court has ruled that a state can only tax an entity if that entity has some kind of a physical presence in the state. Regardless of whether Amazon.com has an actual physical ‘brick and mortar’ presence in Connecticut, the Connecticut legislature’s bill considers Connecticut-based bloggers and other internet content providers who advertise for Amazon.com a sufficient physical presence to subject Amazon.com to the tax. These bloggers and others or ‘affiliates’ advertise for Amazon.com because they receive a portion of the revenue generated by users accessing Amazon through their site.

After the new Connecticut Internet Sales Tax was passed, Amazon.com decided that it would rather give up on Connecticut based affiliates than be forced to pay Connecticut’s sales tax. In its economic calculation, Amazon probably found it more profitable to continue selling goods in Connecticut without having to pay the tax, than it would have been to continue advertising with Connecticut-based affiliates, while being subject on all sales to Connecticut’s new tax.

What effect will the Connecticut Internet Sales Tax have on Connecticut and on Amazon.com?

The immediate effect of the Connecticut Internet Sales Tax has been both a loss to Amazon.com and a loss to the Connecticut based affiliates that had previously generated income from Amazon’s advertisements on their websites. Amazon.com suffers to some extent because it can no longer advertise on the popular Connecticut blogs and websites it on which it had previously been an active advertiser.

To the Connecticut based affiliates, the Connecticut Internet Sales Tax will be perhaps even more traumatic. Not only is Amazon.com prevented from advertising on Connecticut based websites, but other online retailers might also fear subjugation to the Connecticut Internet Sales Tax, and avoid placing any advertisements on Connecticut affiliates websites. Perhaps the law is fair in the long run, as it prevents online retailers from having an unfair advantage, but in the short term, the Connecticut Internet Sales Tax cannot be said to be popular with either online retailers or the Connecticut-based affiliates that were once dependent on them.

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Amazon Supports Federal Internet Sales Tax Bill

Amazon.com supports a federal internet sales tax

Why have lawmakers proposed to initiate a new internet sales tax?

Responding to pressure from states and from organizations, members of the United States Congress are considering passing a federal internet sales tax bill which would force internet companies to pay a sales tax.

Traditional ‘brick and mortar’ retail stores specifically feel that they are at a disadvantage when competing against internet retailers who are not bound by the same tax laws as the ‘brick and mortar’ stores. Though some states have worked on bills which tax online retailers, most states do not as of yet tax purchases made over the internet. Responding from pressures by ‘brick and mortar’ stores, and from individual states who feel that an internet tax would raise state revenues in this difficult economic time, those in Congress have considered passing an internet tax law.

Why does Amazon support the federal internet sales tax bill?

Surprising to many observers has been that Amazon.com, one of the world’s largest online retailers, supports some federal effort to subject internet retailers to taxation. This comes as a particular shock considering Amazon’s opposition to internet sales tax proposals that have arisen in different individual states, including Illinois and Connecticut. Amazon has even stopped conducting business with land based ‘affiliates’ in states mandating an internet sales tax, so as to avoid being subject to those state taxes.

Despite these efforts and the fact that the company could potentially lose business as a result of a tax on online goods, Amazon has consistently supported a federal effort to subject online retailers to an internet sales tax. Representatives of the company claim that Amazon already is subjected to a sales tax in around 50 percent of its total sales across the world, and that sales tax has not adversely affected business. The company also claims that a single internet sales tax policy in the United States would enable Amazon to more effectively sell products in accordance with the law, since the company would not have to deal with the tax policies of each individual state.

What problems could occur if the new internet sales tax proposal became law?

Critics, however, fear that a federal internet sales tax would serve as an undue burden on internet companies. Some argue that small online businesses would be subjected to heavy taxation which could, in turn, stifle the innovation the internet has come to represent. Those opposed to the new tax further contend that the tax subjects these small internet retailers to the same massive tax obligations that large retailers, such as Amazon, are more capable of enduring.

Small companies feel that Amazon’s support of the tax might stem from the belief that Amazon’s small competitors might be forced out of business if a tax was implemented. Companies such as eBay, free-market enthusiasts, and many concerned about the future of the internet have all voiced their concern about what they perceive as a biased and counterproductive internet sales tax.

Filed Under: Internet Lawyer, Internet Sales Tax, Taxes Tagged With: amazon supports federal internet sales tax bill, amazon tax, brick and mortar, counterproductive internet sales, federal internet, federal internet sales, federal internet sales tax, internet, internet retailers, internet sales tax, internet tax, internet tax law, largest online retailers, new internet sales, sales tax, sales tax bill, sales tax policy, sales tax proposal, small internet retailers, small online businesses, tax, tax online retailers