What better day than today to talk about taxes? :-) :-)
The headline for this entry may be drastic, but the bill that passed in the New York State legislature last week may have huge ramifications to e-commerce/mobile commerce, to how online retailers interact with their clients, and to how consumers shop online into the future.
The good news, if you are one who does not like online sales taxes, is that this recent move by the state of New York is not new. The Illinois legislature demanded onlines sales tax to be paid in 2003 and some larger retailers actually voluntarily paid these taxes to some states that demanded it. But, overall, there was no logical enforcement policy for all online merchants to pay the online sales tax, so people have simply ignored attempts by several states to enforce their laws and ensure that companies and consumers pay online sales taxes for purchases by residents in their respective state.
Furthermore, there is a lobbying organization representing 30 states that has tried to enforce an online sales tax code, but they started in 2000 and have had little success in passing legislation at the national level or enforcing laws at the state and local level.
We all know that one of the greatest benefits to online shopping is that customers do not pay sales tax for their purchases and that online merchants do not have to "worrry" about dealing with, and setting up, technology infrastructure to ensure that they pay said online sales tax to states.
I am unsure if the "no online sales tax" rule of thumb for purchases is fair to all parties involved, especially the local governments, which rely on sales tax to provide services to their citizens, but we can all agree that the lack of online sales taxes certainly helped grow e-commerce/m-commerce and it "was" a huge benefit to the consumer and the online merchant, who could outprice any brick and mortar store simpy by selling online "sans" a sales tax.
Now what? And why is the New York decision worrisome?
As reported at DMNews.com: "Late last week, New York legislators approved a bill that will require out-of-state online retailers to begin collecting sales taxes on purchases shipped to New York addresses, meaning that companies such as Amazon, which has no employees or operations in New York, will be required to collect state taxes because several of its affiliates live in the state. This will effectively end tax-free online shopping in New York.
While the New York Governor's office was not available for comment, published reports have noted that Governor David Paterson is expected to sign the measure.
At this point, the key question is not whether other states will attempt to copy New York's aptly dubbed Amazon Tax, since it's really too early to tell, but more so, if the measure will avoid a legal challenge..."
<<<CLICK HERE>>> to read the full story, it is a great read and an important read for all online retailers, if for nothing else, to make sure you are obeying the law when selling and shipping products to New York State residents and zip-codes.
Special Note: I tried to find the actual piece of New York legislation, for you all to read, but I could not find it -- my "Google Skills" need honing. If any of you find it, please let me know and I will post it. In its place, this source outlines succinctly what the online merchant is up against when selling and shipping into New York online. <<<CLICK HERE>>>.
The reason that this particular piece of legislation carries more weight, than prior attempts by other states to enforce an online sales tax policy, is that this is NEW YORK. It is really that simple.
Eventhough many states before have tried to collect online sales tax for purchases, the prognosis of a long drawn out court battle over the constitutionality of an online sales tax and the associated costs to implement online sales tax collection was too great a cost for states to incur, so they have not pursued it. New York is New York and they have the resouces and will power to see this piece of legislation through, all the way to the Supreme Court of The United States, if they want.
The silver lining to all of this and the recently passed New York State piece of legisaltion, for those online merchants who would like to see this whole matter disappear, is:
1. The New York online sales tax provision seems only to apply to those companies with more than $10,000 per year of sales sold through affiliates in New York. New York has now changed its tax regulations to say that a retailer with more than $10,000 a year in revenue has "nexus" if it has sales affiliates in the state. Sales affiliates are companies that receive a commission for promoting another company's products and driving customer traffic to its site.
2. Amazon, a billion dollar company, is camped out in the state capitol of Albany, New York fighting this piece of legislation with lots of money -- as they are the main target of this piece of legislation.
3. There is legal precedence that favors "no online sales tax" and does not help the new New York online sales tax legislation argument, namely the United States Supreme Court Ruling in Quill v. North Dakota, -- Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992) -- in which the judges said that the arcane web of state and local tax codes puts an unreasonable burden on interstate commerce, and finally
4. Other states have chosen not to follow New York's path in part because of legal uncertainties, the cost of fighting a legal battle, the cost of implementing the process to collect the "owed tax" from online retailers, and an economy that certainly does not need any new tax burdens placed on consumers.
Would you want to be the legislature that passed a new tax in 2008 or 2009?
Bottom line....
Online retailers should abide by the law and ensure that they are not in conflict with the present ruling by the New York legislature, in regard to paying sales taxes on online sales to New York residents. However, I believe that this piece of legislation will not hold up in court.
In the meantime, abide by the New York law (my advice always), do what is right, and, if this piece of legislation is repealed, online merchants I am sure will be paid back.
-- Chip
I have written about internet neutrality and spoke about it in Washington DC in 2006 at the Chamber of Commerce for Business Annual Summit in 2006. It was a big issue back then -- and I got into a heated debate with a lobbyist from Verizon when I mentioned that the wireless carriers cannot be allowed to be gatekeepers of information flow. He did not like that phrase, "gatekeepers", but that is what they are and it is still a major issue for all of us, who use the internet to access information freely -- and have come to expect it.
MerchantAdvantage
