Connecticut legislators have introduced three proposals aimed at adding sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to internet purchases. Representative Wright introduced HB 5543 and HB 5545, while Senator Kane introduced SB 259. While two of the bills vaguely ask to apply sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. to internet purchases, HB 5545 is what is known as an "Amazon tax." The bill specifies that:
[S]ales tax is due from an online retailer when the online retailer uses an in-state affiliate to sell its products.
As stated in the bill, online retailers, such as Amazon.com, will be responsible for paying Connecticut's sales tax whenever a customer purchases a product from an in-state affiliate. The problem with Amazon taxes is that they do not produce much revenue. Revenue projections from Rhode Island show no increase from the tax, and potentially a decrease due to the loss of income tax revenue from in-state affiliates. Proponents are arguing (subscription req'd) that the tax puts local retailers on an equal footing with online retailers. However, while local retailers only need to deal with one sales tax, online retailers potentially need to keep track of over 8,000 different rates and bases. This puts a compliance cost on online retailers as they need to keep track of where the purchase is coming from in order to charge the correct tax.
Connecticut considered a similar bill in 2010 that didn't pass. Much of the resistance to the bill came from Amazon.com, who threatened to end its affiliate program in Connecticut if the bill passed.
Amazon taxes do not produce any significant revenue, they make it difficult for online retailers to comply and they may result in job losses when companies like Amazon.com remove themselves from the state. Amazon taxes are not the quick fix that legislatures are looking for to correct their budget deficits.
More on Amazon Taxes:
- Illinois "Amazon Tax" Puts Internet Firms in Danger, January 14, 2011
- Illinois Considers "Amazon Tax", January 4, 2011
- Online Sales Tax Debate, December 20, 2010