Posted May 19, 2011 7:49 pm by with 2 comments

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For awhile now, Amazon has been fighting the battle over the collection of sales tax. The simple version goes something like this. The rule up until now has been that if you don’t have a physical presence in a state, then a retailer does not have to charge sales tax when shipping to that state.

Now, some states are saying that having affiliates in a state, is equal to having a physical presence. One by one, states have been enacting this new law and one by one, Amazon has been canceling affiliate deals with people in those states.

It looks like my state, California, is next. Today, I got an email stating that the California Assembly is going to vote on such a measure next week. Those opposing the bill say over 25,000 business in the state will be affected and it won’t result in more revenue for California because those companies will simply cease doing business here rather than pay up. Now, I don’t make a lot of money from affiliate programs, but I make enough that I’d miss it if I lost this revenue stream. I’m not any happier about it than Jeff Bezos.

Bezos is now taking a stand with the concept that this whole process is unconstitutional if it happens without Congressional approval. He was quoted as saying,

And in the U.S., the Constitution prohibits states from interfering in interstate commerce. And there was a Supreme Court case decades ago that clarified that businesses — it was mail-order at that time because the Internet did not exist — that mail-order companies could not be required to collect sales tax in states where they didn’t have what’s called “nexus.”

Amazon isn’t objecting to the concept of sales tax, though there are plenty of people who think the whole concept should be abolished. What he, and other online businesses are objecting to, is having to collect sales tax based on the wide variety of laws that are particular to each state.

The solution, would be for the Federal Government to enact an internet sales tax that would cover all of the 50 states. The objection here is that sales tax is designed to help pay for the infrastructure of a local area, which a company like Amazon wouldn’t be using in the first place.

The problem is the fact that the laws haven’t caught up with the internet and we’ve seen this in other areas, not just sales tax. Our founding fathers were forward-thinking guys, but I’m sure they never even dreamed of a time where we would be selling items through digital space. Let alone mailing those items to states that were nothing but dangerous, uncharted territories at the time.

The internet may be new, but it’s not that new. Certainly it’s been around long enough for the government to realize that changes need to be made. Local may be all the rage in marketing, but when it comes to laws regarding internet businesses, we’ve got to start thinking global.

How do you feel about a standardized Federal sales tax?


  • Art G.

    The affiliate issue should never come into play. California should halt the Amazon subsidy and stop undermining in-state merchants because the company has a physical presence in cities all over the state, as documented here:

    • Perhaps these states should rewrite there nexus laws to close/open this loophole. In TX, they closed the loophole. Now Amazon will have to collect tax if they have a warehouse (they moved out). In SC, they just passed a nexus exemption so that Amazon WOULD NOT have to collect tax (they are moving in). That’s the beauty of State law. Some use a carrot; others use a stick.