An American Opinion

This spring there was a flurry of political activity as various state governments launched efforts to tax Internet transactions.  As state coffers suffer as a result of the economy, the Internet has been perceived as a golden opportunity by state lawmakers. One of the most common approaches has been to enact what is now being called an “Amazon Law” as a means to collect sales tax.  So what is an “Amazon Law” and how does it affect the average Internet user?

In the past the United States Supreme Court ruled that companies with no physical presence in a state could not be compelled to collect state sales tax.  After that ruling, most states responded by passing laws that made its citizens responsible for voluntarily paying sales tax on Internet Purchases. Personally I think any lawmaker who thought this was going to be effective should have been discharged on the basis of being delusional.  America was founded by a people who didn’t like paying taxes and little has changed.  The line of citizens volunteering to pay sales tax on Internet purchases has been conspicuous by its absence.

Failing to squeeze more money out of its citizenry by these measures, the State of New York passed what is now being called an “Amazon Law”.  That law maintains that if an Internet business has performance-based advertisers in a state, the state considers it to meet the physical presence required by the Supreme Court and therefore the business must collect state sales taxes.  They initially went after Amazon.com hence the name.  Amazon will appeal it and eventually the US Supreme Court will rule whether this legally constitutes physical presence or not.

What it all boils down to is that by state law, an Internet publisher who places an ad for “Willy’s Widgets” on its website, and is paid a small commission if a reader clicks on that ad and purchases a widget, constitutes an physical presence for Willy’s Widgets in that state.  The truth is that the internet publisher has simply sold Willy’s advertising space on a commission basis.  The publisher is not an employee, and is no more involved in transactions than the telephone yellow pages would be.

Unfortunately for the states who have enacted “Amazon Laws” most advertisers simply cancel any agreements with publishers in the state and for obvious reasons it doesn’t appear to have significantly hurt their sales.  It doesn’t halt Internet purchases, it doesn’t limit search engines finding “Willy’s Widgets” and it doesn’t drive customers back to local merchants.  It only reduces the poor publisher’s income …on which he previously paid taxes.  Lawmakers seem oblivious to the fact that it’s a world wide web, not a state wide web.  The Commonwealth of Virginia considered passing an “Amazon Law” but didn’t, in part because they determined that if firms canceled advertising agreements as expected, the state would likely suffer a net loss in taxes collected.

I personally don’t feel that the state deserves to collect sales taxes as it doesn’t really  provide any services pertaining to the transaction that are not already taxed.  But understanding that some taxes are necessary, this convoluted exercise to get around the Supreme Court ruling strikes me as particularly foolish, when a relatively simple solution is available.  Understanding that I am no proponent of taxes in any form, here is a proposed solution for our lawmakers:

“Each Internet transaction is subject to state and local sales tax, based upon the merchant’s primary location.  The merchant shall collect sales tax and remit it to the respective authorities in accord with existing tax law.”

Now I realize that this simple 36 word legislation is an insult to professional politicians used to generating thousands of pages of ineffective and indigestible legislation, but its simplicity is obvious.  If a business is headquartered in Miami, collect Miami sales tax.  If it is headquartered in Phoenix, collect Phoenix sales tax.  It eliminates any argument about physical presence and it is basically fair to everyone.  If I walk into a business and purchase an item, I would pay the applicable sales tax.  Why not forgo wasting millions of taxpayer dollars in useless litigation and just pay the blasted tax and move on?

I don’t really believe a law like this will ever be passed.  Certain cities and states would certainly see it as unfair because they have higher taxes and businesses wouldn’t want to locate in their areas, or even worse, would flee high tax jurisdictions in favor of lower tax communities in order to be more competitive.

In any case, this is just my opinion and I am sure that given sufficient time State and Federal lawmakers will figure out a way to over-tax the Internet or bankrupt taxpayers trying.