California is poised to join New York State in imposing taxes on online purchases made in the state from retailers with a “presence” in California. This would be a huge blow to big online retailers like Amazon.com who have facilities and resellers around the country, including CA. Appropriately, HB 155, a bill to amend the tax code, is being touted as “the Amazon Bill.”
As a small start-up online retailer, I have mixed feelings about this direction state legislatures are taking in order to raise revenue (Hawaii, RI, and the Carolinas have all attempted similar legislation). Although I feel fortunate as a small business owner to be able to compete with giants like Amazon, I am wary of losing the edge that keeps me in the game. If they can tax a company based on a “presence”, I’m not sure how that will be interpreted in the future. Some contend that simply having an ad or a link on another retailer’s site could constitute an affiliation or presence. This could change the way many online retailers do business and will threaten the status quo. But some applaud this as a way to “level the playing field.”
For state governments to compel out-of-state retailers to charge and remit sales tax to the state where the purchaser resides is prohibited by the U.S. Constitution. But when big retailers expand their facilities to other parts of the country, they are required to charge state sales taxes in the states where they operate. Retailers up to now have found ways to circumvent the laws. Affiliate programs are one way they do it. By linking to affiliates in other states, and sharing a percentage of sales, online retailers can avoid the sticky business of taxing the consumer. But in New York, that loophole has been closed. A mere connection, or “nexus”, is enough to compel an out-of-state retailer to pay state sales tax.
Our states are all struggling now and finding new sources of revenue is a full-time preoccupation for some of our legislators. I’ve always thought that states were losing out by not being able to charge tax on online sales. I wasn’t as versed on the Constitution as I am now. It would take a Constitutional amendment to compel companies to collect taxes for the state where the purchaser resides. I am not adamantly opposed to this idea, as long as it reaches across the board. I still feel that a small business like mine has an edge over small brick and mortar stores, and imposing online sales tax would not only help the states, but small locally owned shops. I have to support shopping locally. It matters.
But to compel online retailers to charge taxes to out-of-state customers can’t be done unless that pesky Constitution is changed. I doubt that is gonna happen anytime soon. But what do I know?
I’m just a small fish in a big ocean who is glad that our founders were looking out for me, whether they realized what the impact of their actions would be, or not.
For more info check out Forbes.
Here’s the Assembly Bill 155
An editorial in the Santa Cruz Sentinel supporting the bill.
Thanks for reading!
