Our View: Online sales tax a web of trouble
Online retail giant Amazon.com cut ties with affiliate Web sites in North Carolina and Rhode Island to avoid the latest revenue scheme gaining momentum in state capitals to force out-of-state companies to collect sales taxes on Internet purchases made in those states.
Web retailer Overstock.com also announced last month t also would end affiliate arrangements in those states, as it has with 3,400 online affiliates in New York.
California Gov. Arnold Schwarzenegger got the message. After threats from both companies to end affiliate programs in California, the governor vetoed a package of new taxes that included online sales taxes.
Amazon had warned it "would have little choice but to end its advertising relationships with California-based participants in the Amazon 'Associates Program'," which pays affiliates a percentage of sales based on click-through purchases originating at their Web sites. Taxing the affiliate sales of out-of-state web-based companies is "an unconstitutional burden on interstate commerce" when the seller has no physical presence in the state, Amazon maintained.
These companies — and the governor — correctly oppose this latest attempt by cash-poor state governments to tax out-of-state businesses. The U.S. Constitution requires out-of-state retailers to have sufficient physical connection with a state before they can be forced to collect sales or use taxes, argued the 16,000-member CalChamber, California's statewide chamber of commerce.
Schwarzenegger explained his veto saying, "it makes absolutely no sense to go back to the taxpayers to solve the current shortfall…" He said that based on his veto his staff persuaded Overstock to reverse its decision to abandon California affiliates.
Californians buying online from out-of-state businesses such as Washington state-based Amazon and Utah-based Overstock already must pay sales taxes to California. But most shoppers are unaware of the requirement and don't do it. The legislation vetoed by Schwarzenegger, like new laws elsewhere, would have shifted the tax-collecting burden to the out-of-state sellers.
Requiring out-of-state companies to collect revenue for multiple states not only imposes an unnecessary burden, but as evidenced by Amazon and Overstock, would discourage sales to the detriment of in-state businesses. We support opposition to clever, new tax grabs to fill the coffers of public agencies that already have mismanaged the taxes they collect.