A handful of states have enacted an “Amazon” tax. Named after their most visible target, these laws deem an out-of-state company to be an in-state company for sales tax collection purposes if the company receives commissioned referrals from in-state resident “affiliates.” The out-of-state company must then collect sales tax for the state. Our special report on the topic (and this California update) details these laws and their failure to achieve their goals (raise revenue and create a level playing field). Rhode Island’s revenue head has said the tax actually reduced revenue by causing the end of the state’s affiliate programs and Illinois has seen an outflow of Internet-related businesses.
Add Connecticut to the list of failures. As first reported by Waltreese Carroll of Tax Analysts:
“We have not seen any appreciable or demonstrable relationship between the legislation and entities collecting and remitting taxes that were not collecting and remitting taxes before,” [Connecticut Revenue Commissioner Kevin] Sullivan said.
Sullivan says the real purpose of the tax wasn’t to raise revenue, but to pressure Congress to give states power to collect taxes from out-of-state e-retailers. That’s cold comfort. I personally prefer my elected officials not pass costly, unconstitutional taxes just to “send a message.” States have cheaper and more effective ways to lobby Congress.
However, this is further evidence that the “Amazon” tax approach at the state level is a dead end.