Unemployment is stubbornly hovering just shy of 10 percent. So why are states killing jobs, by continuing to pass laws to collect sales tax from out-of-state online retailers?
The situation has led Amazon.com Inc. (Nasdaq: AMZN) to sever Colorado affiliates from selling its products online.
Look, we all get it: The federal government has decided to continue to support companies like AIG and GM through taxpayer entitlements. Meanwhile, the states are receiving little assistance for many federally funded programs. Further exacerbating the shortfall, normal income from real estate taxes has been severely compromised. States now need to create new ways to derive income through tax programs.
So the state feels it should go after the small business owners that resell goods through the online marketplace.
In the case of Colorado, job losses are projected at 4,200 small mom-and-pop businesses that employ 5,000 people.
This is not an isolated incident, as Colorado joins both Rhode Island and North Carolina in challenging the Supreme Court’s 1992 ruling of Quill vs. North Dakota. That decision ruled that a state cannot force retailers to collect taxes from online sales, unless they have a physical presence in that particular state.
However, these states have asserted
that Amazon in fact is doing business within their borders with local affiliates that have Websites directing customers to Amazon and other online retailers.
In 2008, Amazon objected strongly to the New York State Supreme Court decision supporting the affiliate sales tax. However, Amazon didn’t cut off its affiliates, because the company was given a strong incentive to stay in New York, in the forgiving of back taxes owed.
The same situation doesn’t appear to hold in Colorado. “I’m not at all surprised by this action on Amazon’s part,” wrote investor and Amazon affiliate Brad Feld in a disdainful blog. “I expect the Internet affiliate business in Colorado will completely die within the next thirty days (every company that has an affiliate business will turn off all of their Colorado-based affiliates.)”
There has been backlash concerning Amazon’s sudden departure from Colorado, and it’s targeted primarily at the state legislature. The law enacted this past month, HB 10-1193, is widely unpopular among residents.
So let's review: What appears to be a dangerous trend to both consumers and small online resellers in all this is the combination of state governments extracting revenues from businesses and online retailers pulling out of their markets.
State governments are squeezing both the consumer and affiliate out-of-state online businesses for sales tax, and at the same time losing income tax, as their actions deplete the employment market.
Meanwhile, the large retail e-commerce market seems to turn its back on small-income-bearing states like Rhode Island, North Carolina, and Colorado, but will remain compliant to the large income-grossing states like New York, where revenues justify paying the state sales tax.
Now, another big state, California, could put the situation to the test again.
Listed as the eighth largest economy in the world, California is said to be mulling legislation that would collect an estimated $150 million annually from out-of-state e-tailers.
Beware: It won’t stop here, as the iTunes Tax
is gaining momentum as a future form of state revenue.
Damn, it appears the little guy is taking on the chin… again. Stay tuned.
— Chris Poley has been a professional trader for more than 20 years.
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