States find ‘Amazon tax’ has pitfalls

Marketplace Staff Jul 23, 2009

States find ‘Amazon tax’ has pitfalls

Marketplace Staff Jul 23, 2009


Bill Radke: Amazon made big news yesterday: it’s buying the online shoe site It’s an $850 million deal. Amazon and other Internet retailers have an advantage that customers in certain states don’t have to pay state sales tax on their online purchases — but some states are trying to change this. One thing they’re doing is targeting local companies that partner with the big Internet retailers. From KUOW-Seattle, Deborah Wang has our story.

Deborah Wang: is a pretty typical example of the kind of company that’s now in the spotlight. It’s a California-based Web site that’s all about cooking. Its homepage features a colorful, low-calorie cookbook.

Patty Smith: So if I were to click on the button that says “buy it now,” it would take me to the Amazon page, and then I can complete the purchase right from here.

Patty Smith is a spokeswoman for Amazon. She says Amazon pays hungrygirl a small commission every time a visitor clicks through and buys a copy of the book — about 4 percent of the purchase price.

Smith: Which, for the referring Web site, is free money. is what’s called an affiliate. Amazon and a host of other retailers have affiliate networks all over the world. They argue affiliates act sort of like advertisers.

But some states are challenging that. They say affiliates are like remote sales offices — which means the retailer has a physical presence in the state, and would be required to collect state sales tax.

State Senator David Hoyle is from North Carolina:

David Hoyle: They need to pay us. And it is something that I think is wrong, wrong, wrong, and we want it fixed.

Last year, New York became the first state to pass a law to that effect, and this year, a host of other states, including North Carolina, Rhode Island, and California, have considered various versions of what’s being called the “Amazon tax.” But it hasn’t worked out the way it was intended for states.

Jeffrey Lindsay is a senior analyst for the Internet at Sanford Bernstein:

Jeffrey Lindsay: And so in a sense, it kind of backfired.

Amazon and other retailers, like, have fought back. They’ve responded by severing their relationships with affiliates in several states, including Rhode Island and North Carolina. So if there are no sales, there’s no revenue for the states.

That has caused some states to rethink the Amazon tax. The governor of Hawaii recently vetoed a sales tax measure, and the governor of California vowed to veto one as well.

Lindsay: Bearing in mind that particularly California has backed down, it’ll discourage other states from trying to apply the same rules.

But the fight is by no means over. North Carolina is still debating a version of the tax, and lawmakers in California plan to introduce it again.

I’m Seattle, Deborah Wang for Marketplace.

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