WSJ: Amazon Threatens Cuts Over State Taxes
Muggle
TECHNOLOGY
June 19, 2009
Amazon Threatens Cuts Over State Taxes
By GEOFFREY A. FOWLER
Cash-strapped states trying to force retailers to collect taxes on
online sales are spurring efforts by Internet retailer Amazon.com Inc.
to avoid being swept under the proposed laws.
North Carolina is close to passing a law that would force online
retailers to collect the state's 4.5% sales tax from marketing
affiliates, people who get a sales commission from online customer
referrals. Amazon, of Seattle, Wash., told its North Carolina
marketing affiliates on Wednesday that it would stop doing business
with them by July 1 if the law takes effect. Cutting the affiliates
would enable Amazon to avoid collecting tax on sales in the state.
"We believe the way North Carolina is going about collecting the sales
tax is unconstitutional," said Amazon spokeswoman Patty Smith. "It
isn't appropriate for us to have to comply with an unconstitutional
burden."
Hawaii is weighing a similar law. California's Legislature earlier
this year tabled a bill targeting marketing affiliates, while
Connecticut has discussed but not acted on a bill. The states see
sales taxes on online purchases as offsetting declining collections
elsewhere. A study released in April by the University of Tennessee
estimated that uncollected Internet sales taxes will cost state and
local governments more than $11 billion a year by 2012.
New York passed an Internet sales tax law last year, which Amazon
challenged in court but lost. While the retailer appeals that ruling,
it is collecting taxes from New York customers. States including
Maryland, Minnesota, and Tennessee have considered then scrapped
similar proposals.
Online shoppers are already supposed to pay tax for items they have
bought online by self-reporting taxes, but most don't bother. Forcing
e-commerce companies to collect the tax upfront could take away some
of the price advantage that online shopping has over traditional
retailing.
Amazon does collect sales tax in states such as Washington where it
has offices and warehouses. In North Carolina, the issue boils down to
whether states count marketing affiliates as commissioned sales people
with a physical presence in the state, or -- as Amazon maintains --
merely advertising outlets.
Muggle
TECHNOLOGY
Amazon Cuts North Carolina Affiliates to Avoid Tax
By GEOFFREY A. FOWLER
Amazon.com Inc. said it has ended business relationships with
marketing affiliates in North Carolina to avoid collecting sales tax
in the state.
North Carolina within the next week could pass a law that would force
companies to collect the tax if they have in-state online-marketing
affiliates -- people who get a sales commission from links on their
Web sites. To avoid getting caught by the law, Amazon is dropping the
affiliates.
Affiliates account for a relatively small slice of Amazon's traffic,
so the move isn't likely to cause major damage to the company's
business. The Seattle e-commerce giant will continue to sell goods
directly to consumers in the state through its own Web site and will
still allow purchases from independent online merchants that sell
through Amazon's site.
But the decision highlights mounting tensions between online retailers
and cash-strapped states across the country. Other states are
considering similar laws that would use affiliates as a way to force
companies to collect a sales tax for online purchases. Amazon also has
threatened to pull out of its affiliate business in California,
Hawaii, Rhode Island and other states. States including Maryland,
Minnesota and Tennessee have rejected similar laws.
Consumers are technically supposed to pay a so-called use tax for
online purchases on their own, but most don't. Many e-commerce sites
rely on the price advantage they have over traditional retailers
because they don't have to collect taxes, and forcing them to collect
the tax upfront could take away some of that advantage.
New York passed an Internet-sales-tax law last year, which Amazon and
Overstock.com Inc. challenged in court but lost. While they are
appealing that ruling, Overstock has dropped its affiliates in the
state and Amazon has begun collecting a sales tax in New York.
In an e-mail Amazon sent early Friday morning to North Carolina
affiliates, the company informed them that their accounts would be
closed as of June 26. "This is a direct result of the unconstitutional
tax collection scheme expected to be passed any day now by the North
Carolina state legislature (the General Assembly) and signed by the
governor," reads the message.
"In the event that North Carolina repeals this tax collection scheme,
we would certainly be happy to re-open our Associates program to North
Carolina residents," the email added.
Amazon spokeswoman Patty Smith said the company made the move because
"the way it is drafted in North Carolina is that the law goes into
effect when it becomes enacted -- and that could be as early as
tomorrow."
Trade groups representing affiliates say that using them as a means to
collect taxes is unfair and ineffective, because they also contribute
income-tax revenue to states.
"The sad irony of this issue is that the 'Amazon Tax,' as the North
Carolina General Assembly calls it, will not collect any taxes -- it
will only cause lost revenue for North Carolina businesses," said Bob
Butler, the chief executive of BestThinking.com, a former Amazon
affiliate based in Cary, N.C.