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Do 'Amazon laws' backfire?

March 09, 2010

They just might, reports the Tax Foundation:

As more states consider enacting so-called "Amazon tax" laws to force online retailers to collect sales taxes, a new Tax Foundation report cautions that such policies would not only fail to relieve short-term budget problems but also hurt long-term economic growth.

Click here to read the new report, "Amazon Tax" Laws Signal Business Unfriendliness And Will Worsen Short-Term Budget Problems, Tax Foundation Special Report No. 176.

The key findings:

* Frustrated by their inability to impose tax collection obligations on companies with no substantial connection to their state, several states are considering the adoption of "Amazon" tax laws. Such laws currently exist in New York, Rhode Island, North Carolina, and Colorado.

* An Amazon tax law requires retailers that have contracts with "affiliates"-independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business-to collect the state's sales and use tax.

* Amazon taxes are unlikely to produce revenue in the near term. New York continues to face a lengthy legal constitutional challenge. Rhode Island has even seen a drop in income tax collections due to the law.

* Amazon taxes do not level the playing field between brick-and-mortar and Internet-based businesses because they require Internet-based businesses to track thousands of sales tax bases and rates while brick-and-mortar businesses need to track only one.

* Unconstitutionally expansive nexus standards like the Amazon tax undermine legal certainty, burden interstate commerce, and harm economic growth.

That won't stop revenue hungry states from trying more Amazon taxes.

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