Struggling States Considering Internet Sales Tax Initiatives

Following in the footsteps of New York, several states are considering forcing e-commerce companies, such as Amazon.com, to collect sales taxes on Internet purchases.  The move is seen as an attempt to counteract some of the budget shortfalls states are facing.  

Currently, legislators in California, Hawaii, Connecticut, Minnesota and Tennessee have introduced bills requiring online merchants with affiliate sites in their states to collect sales taxes.  New York instituted such a law last year which Amazon.com and Overstock.com challenged in lawsuits that were dismissed by a New York state judge in January.  Both companies are appealing these rulings.  

The New York law contends that since Amazon.com has affiliate Web sites operating within the state, they have a physical, therefore taxable presence in the state.  Analysts believe as more states deal with budget crises, it’s likely that they will take a more serious look at this New York precedent.  

“It goes right to the heart of their business model,” says Maureen Riehl, a lobbyist for the National Retail Federation.  She says this could be a deterrent to cost-conscious shoppers not accustomed to paying tax on online orders.  “You start to think, ‘Is it easier to go down to the Sears store or buy it online?’” says Riehl.

Experts believe Amazon.com is likely holding out for a federal uniform online sales tax code that applies equally to all e-commerce sites regardless of whether they use affiliate Web sites or not.  This would put Amazon and Overstock on equal footing with other online sellers such as eBay which does not utilize affiliate sites and therefore is not subject to the New York law.

For more details, see the story in the Puget Sound Business Journal:

http://seattle.bizjournals.com/seattle/stories/2009/03/16/story8.html?b=1237176000%5E1794248&t=printable