Report: "Amazon Taxes" Will Worsen Budget Problems, Deter BusinessExpansive Nexus Standards Burden Interstate Commerce, Harm Economic Growth Washington, DC - As more states consider enacting so-called "Amazon tax" laws to force online retailers to collect sales taxes, a new Tax Foundation report cautions that such policies would not only fail to relieve short-term budget problems but also hurt long-term economic growth.
New York, Rhode Island, North Carolina and Colorado have Amazon taxes, and the Multistate Tax Commission last week indicated its plans to draft model legislation based on the laws in place in those states.
"Enactment of an Amazon tax is an aggressive and unconstitutional assertion of state power," said Joseph Henchman, the Tax Foundation's Tax Counsel and Director of State Projects, who authored the report.
"These taxes are the latest in a series of efforts to eliminate the long-standing 'physical presence' standard and replace it with a nebulous, arbitrary 'economic presence' standard, where businesses can be taxed in every state where they have customers - meaning retailers large and small must track more than 8,000 sales tax rates and bases."
"This flies in the face of the argument that Amazon taxes 'level the playing field' between brick-and-mortar and Internet-bases businesses," Henchman said.
Tax Foundation Special Report, No. 176, "'Amazon Tax' Laws Signal Business Unfriendliness and Will Worsen Short-Term Budget Problems," is available online at http://www.taxfoundation.org/publications/show/25949.html.
Amazon taxes (also known as affiliate nexus taxes or affiliate taxes) require retailers that have contracts with "affiliates" - independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business - to collect the state' sales and use tax. Even groups such as the National Conference of State Legislatures and the Streamlined Sales Tax Project oppose Amazon taxes.
Amazon taxes are unlikely to produce revenue in the near term, according to the report. New York continues to face a lengthy legal constitutional challenge, and Rhode Island has even seen a drop in income tax collections due to the law.
Unconstitutionally expansive nexus standards such as Amazon tax laws threaten interstate commerce and the national economy by discouraging business expansion.
"The real concern should be the extent of state powers," Henchman said. "Should states be able to reach beyond their geographic borders and impose their tax system on everything everywhere? Do we really need to make sure that taxes are the same in all states, and that people can't shop by tax rates as they shop by price, quality or convenience?"
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
Posted: March 8, 2010
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