Recent financial calamity has wracked the American government for years and came to a chilling conclusion earlier this year as Washington barely cobbled together a budget deal that would prevent sending the nation into the precipice of default.
States left out in the cold during the process and as a result of the gutted programs are scrambling to find ways to close deficits sometimes reaching into the billions.
One strategy is to recoup tax revenue from businesses that operate a “physical presence” within a state but gain significant revenue outside of that state. For example, since Iowa does not collect sales tax from the thousands of dollars you spent online, they are losing out on money that can help even out the budget. California could be missing out on as much as a billion dollars to unreported use taxes, and so bills have been proposed and signed into law forcing online retailers to pay a sales tax on goods sold within the state.
From a state perspective, it makes sense to close a loophole that will result in netting significant amounts of tax dollars and move states out of the financial wasteland without directly taxing the people. States are approaching the dilemma in different ways: some are asking for loot while others are demanding. Ohio and Texas each presented bills to retailers L.L. Bean and Amazon.com, respectively, for unpaid sales tax from online operations.
Amazon.com clearly felt the pressure and balked at the numbers states were putting in front of them. The massive online retailer first threatened to cancel its California affiliate program—a network of brick and mortar retailers that helped with sales and fulfillment services—before pulling the plug, saying the law was , “unconstitutional and counter-productive” and citing similarly failed legislation in other states.
True enough, Paul Dion, head of the department of revenue analysis for Rhode Island has said he and his department, “do not believe that there has been any sales tax collected as a result of the Amazon legislation.” In addition to losing the revenue generated from these affiliate programs, states may be missing the point when trying to extract tax revenue from online retailers.
The plot can only thicken from here. Will Amazon.com and other largely online retailers be strong-armed into payment by states, or will the withdrawal of affiliate programs force these states to re-evaluate their approach? Only time will tell.
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