There are two things that are certain in this world: Death and taxes. California is proving the latter as they join six other states in attempting to force online retailers to charge sales tax on purchases made by citizens of the state. The LA Times is reporting that the measure is expected to pull in an estimated $317 million a year in revenue to the struggling state.
At issue is the fact that a 1992 Supreme Court ruling states that a state can’t force the collection of taxes if the seller doesn’t have a physical presence in the state. To get around this, states are considering affiliates and advertisers as a physical presence. To counter this, Amazon.com and Overstock.com have both severed their affiliate programs in many states; according to the article, California collected $152 million in state income taxes last year, money that will no longer be flowing into the coffers.
Many people are unaware of the intricacies in sales tax laws in the United States and believe it’s as simple as charging a flat rate to everyone in a state. Unfortunately nothing is that simple; according to Tax Lawyer NYC, there are approximately 11,000 different sales tax jurisdictions in the country and to force a company to keep track of them all forces an additional burden and a large expense. It’s unlikely that a small company would be able to compete on the Internet if they were forced to collect taxes for every jurisdiction in the country. It’s ironic that companies like WalMart, notorious for moving into cities and destroying small businesses, have been complaining about Amazon having an unfair cost advantage.
As states try to balance their budgets, large online retailers have increasingly become easy targets due to the fact that they’re out of state and could potentially generate millions of dollars. It will be interesting to see if these new laws will have an impact on future e-commerce both from established companies as well as new startups.