Another idea O’Malley is sure to pounce on

Since the dawn of online shopping, states have fretted about the loss of sales tax revenues stemming from Internet sites who do not collect state taxes. While some states depend on the honesty of taxpayers to report these transactions and pay the sales tax after the fact with their tax returns, the fact remains that most who buy online do so in order to avoid paying the premium on goods that occurs when stores have an actual shop within their state. (Around these parts, the savings of 5 percent that’s soon to increase to at least 6 percent drives consumers to shop in tax-free Delaware for big-ticket items.)

It was mentioned on Rush this afternoon but Joseph Goldberg, writing in the New York Sun, noted that New York Governor Eliot Spitzer has leaned on the web retailer Amazon.com to collect sales tax from Empire State residents who partake of Amazon’s wares. This adds a premium of 8 percent or so to the purchase price New Yorkers would otherwise pay.

In some respects, this hits me where I live because I’m an Amazon affiliate as well. According to Goldberg’s article:

At issue is the “affiliate program” used by many e-retailers. Web site operators can provide a link to an e-retailer in return for a commission on any sale resulting from customers using the link. While the affiliate program may consist of little more than a non-descript advertisement on the computer screen, the tax consequences may be huge: New York state says it is the equivalent of having an instate salesperson.

“It’s just treating the affiliate the same way we would treat any other type of sales representative,” Mr. Spitzer’s budget director, Paul Francis, said in an interview.

These levies could be catastrophic to online sellers of all sorts. Once the door is opened as Spitzer is attempting to do, what’s to stop other states from adopting the same policy? I’m sure our Governor would love to collect the millions that go uncollected from sales through these sorts of programs. Not only would Amazon.com be affected but something tells me that other affiliate-based programs like that found on Art.com and Google’s AdSense may be hit as well. I think that either the programs will be dropped or the commissions further reduced as more states jump on the Spitzer bandwagon.

This also comes on the heels of a moratorium on Internet use taxes that just passed through Congress and was signed into law. Unfortunately, a permanent prohibition could not be passed so the process will open up again in 2014.

While the particular Spitzer tax isn’t the issue in what follows here, it occurs to me as I look into this that here is a subject which could also serve as a chink in the armor to those who favor the FairTax. Because the FairTax is supposed to be collected on items which are new, a retailer like Amazon.com or particularly Ebay could run into trouble when they sell a mix of new and used items. While I still think the FairTax is the way to go I can see the issue with retailers maybe reclassifying items to avoid having to collect these levies when they sell both sorts of items.

On the whole, don’t be surprised if and when New York makes a go of this policy that our tax-hungry Governor O’Malley is right behind them in line trying to press Amazon.com and its cohorts into doing the same thing for Maryland buyers.

Late edit: Just about the time I finished writing this, it was reported that Spitzer was dropping this plan as well as one to supply driver’s licenses to illegals. But that doesn’t mean someone in Annapolis wasn’t paying attention.

Author: Michael

It's me from my laptop computer. View all posts by Michael