The LA Times has an interesting article today on an overlooked aspect of tax policy: The “nexus” exemption for Internet and catalog retailers.
It focuses on Amazon’s threats to remove an affiliate program that several states are using to try to tax the online giant’s sales. As it is, most states can’t charge sales tax on a book if you buy it from Amazon.com but can if you buy it from, say, barnesandnoble.com.
That’s because of law that says you can’t charge sales tax on an entity unless it has a physical location in your state. But the states are saying the affiliate programs, where a person gets 5 percent or so from sales made through clicks on his site, constitute nexus. So Amazon and smaller sites like Overstock are cutting bait:
On Monday, Amazon cut its ties with Rhode Island affiliates after the state’s Assembly passed legislation requiring the company to collect taxes; three days earlier, Amazon canceled its program in North Carolina.
“We feel that the way the state legislatures are going about this is inappropriate,” said Patty Smith, an Amazon spokeswoman. “It places an unconstitutional burden on interstate commerce for a state to require a seller without a physical presence in that state to collect sales tax.”
Here’s the disingenuous quote from Overstock’s president Jonathan Johnson:
“We turned off over 3,400 affiliates in New York and we’re looking at doing it in every state that’s got that kind of legislation proposed,” Johnson said. “In our view, it’s just not worth it to run an affiliate program where the state’s going to make us a tax collector.”
Tax collector, huh? Like every mom-and-pop store in the state that your $300 million corporation gets an unfair advantage over?
At a time when tax revenues are plummeting across the country, states are looking for ways to find new ones, as the LAT points out. Cities and states have chafed against the nexus rule because it hurts their sales-tax revenue.
It doesn’t seem like we’ve heard this issue raised in the last several years. The excuse for not levying sales tax on Internet retailers used to be that we didn’t want to kill the baby in the crib—we had to let the Net mature.
But it’s been sixteen years since the release of the modern Web browser and I think it’s safe to say the Internet’s here to stay. Amazon is a $36 billion company with large revenues in every state. Why can’t it collect sales tax like everybody else?
The LAT reports:
Opponents argue that collecting sales taxes would be both burdensome and costly for Internet retailers; for consumers, it would raise the total cost of purchases. Thousands of people who rely on commission fees would be affected by the programs’ cancellation.
I know from my own reporting on this area a few years ago that retailers can use the nexus exemption to threaten states. Cabela’s, the big outdoors retailer and huge corporate welfare recipient, used to (and may still, for all I know) threaten not to locate one of its huge stores in a state unless it got a sales-tax exemption for its catalog business.
This topic needs to be revisited by the press in an era of declining tax revenues and when shops owned by actual residents of the state are hurting—and having to pay taxes their competitors don’t.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.