When the tax costs of operating in New York are only a fifth of the cost of locating the same operation in Wyoming, something unusual is going on. Yet that’s exactly what we find for new research and development (R&D...
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Louisiana Considers "Amazon Tax": Target is In-State Marketers
Legislators in Louisiana are considering a click-through nexus law. Commonly known as "Amazon" laws 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 a number of states have considered "Amazon" laws in the past four years, only five have enacted them (Connecticut, Illinois, New York, North Carolina, and Rhode Island) and they have been unsuccessful and ruled unconstitutional.
Our 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. Sponsors have promised revenue windfalls follow enactment of an Amazon tax, but no windfalls have been forthcoming so far. 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.
- Rhode Island revenue-analysis office head Paul Dion stated in December 2009 that the six-month-old law had collected no revenue. An affiliate trade group believes that Rhode Island has seen less tax revenue come in because the elimination of the affiliate program reduced income and thus income tax collections; State Treasurer Frank Caprio echoed this, saying, "The affiliate tax has hurt Rhode Island businesses and stifled their growth, as they've been shut out of some of the world's largest marketplaces, and should be repealed immediately."
- North Carolina has also not seen additional revenue from the law.
- Illinois has seen an outflow of Internet-related businesses after its law's passage, which was declared unconstitutional earlier this month.
- While New York is collecting revenue, it is because Amazon.com is collecting taxes under protest while the issue is litigated. If New York loses the case, it will have to refund those collections to taxpayers.
"Amazon" tax laws such as the one Louisiana is currently considering are poor tax policy and likely unconstitutional. Some possible amendments to obviate these flaws include:
- Require that in-state affiliates be the source of a majority of the out-of-state seller's sales in the state for the collection obligation to be effective.
- Replace the collection obligation with a requirement that the out-of-state vendor notify the customer by e-mail that a use tax obligation may exist.
- Treat out-of-state and in-state online businesses alike by forcing in-state businesses to collect each jurisdiction's respective sales tax on all their out-of-state sales.
- Switch to an origin-based system whereby all Louisiana businesses must collect Louisiana sales tax on their sales, regardless of where the customer is, and urge other states to follow the lead.
- Exempt the in-state online sales by brick-and-mortar retailers from the state sales tax.
- Switch efforts to federal solutions.
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The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.