State Tax Trends: ‘Amazon’ Taxes

Taxing Online Sales Has Been a Losing Proposition

Washington, D.C., June 11, 2012—Since 2008, several states have attempted to tax online purchases by their state’s residents, even when the seller has no physical presence in the state. These laws, nicknamed “click-through nexus” or “Amazon tax” laws (after their most visible target), have been extremely controversial and largely a failure at generating revenue, according to a new analysis by the Tax Foundation.

In 2008 New York adopted the first Amazon law, requiring businesses with no physical presence in the state to remit sales tax on purchases if they enters into agreements with in-state residents and have sales within the state of more than $10,000 a year. Amazon.com and Overstock.com have challenged the law; the case is currently being appealed to New York’s highest court.

Rhode Island and North Carolina passed laws similar to New York’s in 2009, but neither has yet to yield any revenue. Laws were also passed in California and Hawaii but vetoed. Illinois has also passed such a law but it was ruled unconstitutional in 2012. Many other states have considered these laws but not passed them.

“Contrary to the claims of supporters, Amazon taxes do not provide easy revenue,” said Tax Foundation Vice President for Legal & State Projects Joseph Henchman. “In fact, the nation's first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue. For instance, Rhode Island has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax.”

While efforts continue at the state level to enact these laws, their dubious constitutionality and lack of success in raising revenue or leveling the playing field has shifted attention to the federal level, where Congress is considering proposals to set standards for state sales tax collection on interstate sales. Two recent proposals in particular would eliminate the physical presence rule but otherwise make advances towards ensuring that states reduce the burdens associated with collecting their sales taxes.

Tax Foundation Fiscal Fact No. 309, “Trend #5: "‘Amazon’ Taxes” by Joseph Henchman is available online.

Read about all of the Top 10 State Tax Trends in the Recession and Recovery here.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.