Amazon ends its affiliation with websites in Connecticut and Arkansas rather than pay sales tax
On Friday, Amazon discontinued its affiliation with websites in Connecticut and Arkansas in retaliation to new legislation in both states that attempts to collect sales taxes from online retailers.
The government of Connecticut estimated that it could collect $9.4 million by passing the “Amazon Tax,” which levies normal sales taxes against online retailers affiliated with websites located within the state. Legislatures in other states have attempted to tax online retailers in a similar fashion. These states include Colorado, Rhode Island, Illinois, and New York. Texas Gov. Rick Perry vetoed similar legislation after Amazon withdrew a large distribution center located in his state.
Amazon has claimed that closing the online retailer tax loophole is unconstitutional given the 1992 Supreme Court case, Quill Corp. v. North Dakota, in which the court found that sales taxes could only be levied against businesses that had a physical presence in the state. Amazon and other online companies have historically avoided paying sales taxes in all of the states in which their customers are located because they lack a physical presence as stores. But the new taxes pursued by Connecticut and other budget-strapped states are justified by the fact Amazon is advertising itself and its products on servers physically located within the states.
Amazon has ended its affiliation with websites in all of the states that have levied the tax except for New York. As with previous states in which affiliate sites have lost Amazon’s business, a letter was distributed by Amazon in which it blamed its decision on the “unconstitutional and counterproductive” tax and cited lobbying by “big-box retailers” as a motivating force behind the legislation.
It’s doubtful that the effects of Amazon’s withdrawal will be immediately felt by anyone in these states other than the affiliates themselves, however, as consumers in the affected states can continue to purchase products on Amazon.
I think that eventually Amazon will have to give in and start collecting sales tax as more and more states begin to demand it (CT, AK, NY, CA, TX, etc).
Of course, consumers won’t be happy about paying sales tax, and many are already discovering ways to avoid doing so. For example, many consumers in California and New York use a package forwarding service from Oregon (where there is no state sales tax) to shop tax-free online, even though their states collect sales tax on online purchases. (You just order with an Oregon address, then have your packages forwarded to your own state, tax-free). See http://bit.ly/mRILaE