MNeagle
10th March 2011, 08:55 PM
By STU WOO
Amazon.com Inc.'s battle with state governments over sales taxes is escalating.
The online retailer on Thursday took action in Illinois, as it had threatened to do, to counter a new law aimed at forcing online retailers to collect sales taxes in the state. Hawaii, North Carolina and Rhode Island have enacted similar laws, and California is weighing action. Amazon is also in a court battle with New York over such legislation.
The Illinois law, signed by Gov. Pat Quinn Thursday, requires online retailers that work with affiliates in the state to collect sales taxes on purchases made by Illinois residents and businesses. Amazon responded to the measure by cutting ties to its Illinois-based affiliates, which are blogs and other websites that refer traffic to Amazon's website and get paid commissions if customers make purchases there.
Amazon, which is based in Seattle, has fiercely opposed all efforts to force it to collect sales taxes. "We had opposed this new tax law because it is unconstitutional and counterproductive," Amazon said in its letter to Illinois affiliates. "We deeply regret that its enactment forces this action."
The Amazon action has little impact on Illinois consumers. They can continue to buy directly from the company as well as pass through affiliate websites to reach its website, without Amazon collecting sales tax. But Amazon's payments to those websites will be halted.
Illinois has about 9,000 affiliates, said Rebecca Madigan, director of an affiliate trade group called the Performance Marketing Association. She said the Illinois affiliates generated $611 million in advertising revenue in 2009 and tax revenue of $18 million. She estimates that the state will lose 25% to 30% of that tax revenue because the affiliates will lose business, cut jobs or move out of the state.
"It has a devastating impact," Ms. Madigan said of the new Illinois law.
Gov. Quinn had argued that the law would "put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace." Representatives for the Gov. Quinn couldn't be reached for comment after Amazon's move.
A 1992 U.S. Supreme Court ruling said that retailers have to collect sales taxes in a state only if they have a substantial physical "nexus" there. The new Illinois law established marketing affiliates as nexuses. Amazon has referred to these affiliates as "advertisers."
Amazon's stance against collecting sales tax has drawn the ire of brick-and-mortar retailers, who complain the company has an unfair business advantage over rivals that collect sales taxes. Meanwhile, lawmakers have become more determined to make the online giant collect taxes to help address budget shortfalls that have become big problems for many states.
Over the past two years, officials in several states have tried different tactics to try to compel Amazon and other retailers to collect sales taxes. New York, Hawaii, Rhode Island, North Carolina and now Illinois have passed laws that require online retailers with marketing affiliates in their state to collect sales taxes.
The company is collecting sales tax in New York, while continuing to fight the legislation in court, as well as in Kansas, Kentucky, North Dakota and Washington. Most of the remaining 45 states require customers to report what is known as a "use tax" on out-of-state purchases, but few people actually do.
California legislators are also considering enacting similar legislation. Amazon said Thursday that it will drop California affiliates if the law passes, as the company has previously warned.
Brick-and-mortar retailers—many of which have been seeking to pursuade Amazon affiliates in Illinois and other states to work with them instead—had praised the Illinois law.
"Gov. Quinn has taken a bold step today to help level the playing field for retailers in Illinois," said Sandy Quinn, president of a trade group called the Retail Industry Leaders Association. "Whether a sale happens in a store or online, the sales tax collected should be the same. It's time to end the special treatment given to online-only retailers."
Members of this retail association include Wal-mart Stores Inc., Best Buy Co. and other big-box retailers.
http://online.wsj.com/article/SB10001424052748704399804576193212782052704.html?m od=rss_whats_news_us_business
Amazon.com Inc.'s battle with state governments over sales taxes is escalating.
The online retailer on Thursday took action in Illinois, as it had threatened to do, to counter a new law aimed at forcing online retailers to collect sales taxes in the state. Hawaii, North Carolina and Rhode Island have enacted similar laws, and California is weighing action. Amazon is also in a court battle with New York over such legislation.
The Illinois law, signed by Gov. Pat Quinn Thursday, requires online retailers that work with affiliates in the state to collect sales taxes on purchases made by Illinois residents and businesses. Amazon responded to the measure by cutting ties to its Illinois-based affiliates, which are blogs and other websites that refer traffic to Amazon's website and get paid commissions if customers make purchases there.
Amazon, which is based in Seattle, has fiercely opposed all efforts to force it to collect sales taxes. "We had opposed this new tax law because it is unconstitutional and counterproductive," Amazon said in its letter to Illinois affiliates. "We deeply regret that its enactment forces this action."
The Amazon action has little impact on Illinois consumers. They can continue to buy directly from the company as well as pass through affiliate websites to reach its website, without Amazon collecting sales tax. But Amazon's payments to those websites will be halted.
Illinois has about 9,000 affiliates, said Rebecca Madigan, director of an affiliate trade group called the Performance Marketing Association. She said the Illinois affiliates generated $611 million in advertising revenue in 2009 and tax revenue of $18 million. She estimates that the state will lose 25% to 30% of that tax revenue because the affiliates will lose business, cut jobs or move out of the state.
"It has a devastating impact," Ms. Madigan said of the new Illinois law.
Gov. Quinn had argued that the law would "put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace." Representatives for the Gov. Quinn couldn't be reached for comment after Amazon's move.
A 1992 U.S. Supreme Court ruling said that retailers have to collect sales taxes in a state only if they have a substantial physical "nexus" there. The new Illinois law established marketing affiliates as nexuses. Amazon has referred to these affiliates as "advertisers."
Amazon's stance against collecting sales tax has drawn the ire of brick-and-mortar retailers, who complain the company has an unfair business advantage over rivals that collect sales taxes. Meanwhile, lawmakers have become more determined to make the online giant collect taxes to help address budget shortfalls that have become big problems for many states.
Over the past two years, officials in several states have tried different tactics to try to compel Amazon and other retailers to collect sales taxes. New York, Hawaii, Rhode Island, North Carolina and now Illinois have passed laws that require online retailers with marketing affiliates in their state to collect sales taxes.
The company is collecting sales tax in New York, while continuing to fight the legislation in court, as well as in Kansas, Kentucky, North Dakota and Washington. Most of the remaining 45 states require customers to report what is known as a "use tax" on out-of-state purchases, but few people actually do.
California legislators are also considering enacting similar legislation. Amazon said Thursday that it will drop California affiliates if the law passes, as the company has previously warned.
Brick-and-mortar retailers—many of which have been seeking to pursuade Amazon affiliates in Illinois and other states to work with them instead—had praised the Illinois law.
"Gov. Quinn has taken a bold step today to help level the playing field for retailers in Illinois," said Sandy Quinn, president of a trade group called the Retail Industry Leaders Association. "Whether a sale happens in a store or online, the sales tax collected should be the same. It's time to end the special treatment given to online-only retailers."
Members of this retail association include Wal-mart Stores Inc., Best Buy Co. and other big-box retailers.
http://online.wsj.com/article/SB10001424052748704399804576193212782052704.html?m od=rss_whats_news_us_business