NCPA - National Center for Policy Analysis

Amazon Tax Laws

July 15, 2011

Beginning July 1, California's "Amazon" law went into effect.  Named after their most visible target, these laws deem an out-of-state company to be an in-state company for sales tax collection purposes if the company receives commissioned referrals from in-state resident "affiliates."  The out-of-state company must then collect sales tax for the state.  While 21 states have considered "Amazon" laws in the past three years, only seven have enacted them: Arkansas, California, Connecticut, Illinois, New York, North Carolina and Rhode Island, says Joseph Henchman, vice president of legal and state projects at the Tax Foundation.

The Tax Foundation's recent Special Report on Amazon tax laws explains why they expand state taxing authority in a manner likely to invite extended litigation, and that in every state they have failed in their twin objectives of collecting additional revenue and creating a level playing field between brick-and-mortar and remote sellers.

Amazon Tax Laws Have Failed to Collect Additional Revenue.

  • Proponents of the California claim that the law will raise $200 million per year in tax revenue, but no windfalls have been forthcoming in other states with identical laws.
  • This is often because online companies respond to Amazon tax law enactments by ending their affiliate programs.
  • In-state persons who earn income from referring potential customers lose that income source.

Amazon Tax Laws Do Not Create a Level Playing Field.

  • Amazon tax laws do not level the playing field; instead, they create a three-fold unequal tax structure.
  • One, in-state brick-and-mortar businesses must collect sales tax based on where the business is located.
  • Two, out-of-state online businesses must collect sales tax based on where the in-state customer is located.
  • Three, in-state online businesses face no additional obligation beyond collecting sales tax on in-state sales.

Amazon tax laws such as the one California has enacted are poor tax policy and likely unconstitutional, says Henchman.

Source: Joseph Henchman, "California Becomes Seventh State to Adopt 'Amazon' Tax on Out-of-State Online Sellers," Tax Foundation, July 1, 2011.

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