States Starting to Realize 'Amazon Tax' Won't Save Them

It’s somewhat hard to keep up with which state is passing the so called "Amazon Tax," which have vetoed it, and which retailers have pulled the plug on their program–just in anticipation of it.

Let’s start with the good news. Both California and Hawaii look set eject the planned affiliate nexus, with vetoes from their respective governors.

CA’s Arnold Schwarzenegger stated:

"After passing the largest tax increase in California history, it makes absolutely no sense to go back to the taxpayers to solve the current shortfall – that’s why yesterday I vetoed the majority vote tax increase passed by the legislature."

Meanwhile HI’s Governor Linda Lingle says:

“I am vetoing this bill immediately to help ensure Hawai‘i is not economically hurt by legislation that was not well thought-out and would have negative consequences for non-profits such as the University of Hawai‘i bookstore, and businesses throughout our State”

Both actions were enough for Overstock.com (OSTK) to announce the reinstatement of affiliate programs in both California and Hawaii. There’s no news on a reversal from Amazon, but I suspect it will happen this week.

On to the bad news.

North Carolina still seems set to pass its Amazon (AMZN) Tax legislation and Rhode Island looks to be the next state to make the blunderhead move.

So, what exactly is the Amazon Tax? It’s not that these states plan to add new taxes for those affiliates earning income from these online retailers–they already pay their income taxes. Nope. The Amazon Tax effectively claims that, by having affiliates in a state, the retailer has an obligation to collect sales tax on all its online purchases from that state.

When you consider that an affiliate isn’t even close to being a contractor–which employers are not obliged to collect income tax–let alone an employee, you see why this legislation is nothing but a desperate money-raising effort by states that over-spend and can’t otherwise balance their budgets.

Comments

[Network Effect:]

Or it's a way to save local businesses who pay state income taxes, and provide jobs for local people who pay state income taxes. In my opinion, the Amazon tax has nothing to do with tax revenues generated from Amazon or any other out of state retailer who currently sells their goods and services to in-state residents. It has to do with the unemployment level. Walk down any street and how many 70% off signs or empty stores or Retail Space Available signs do you see? Ask any manufacturer if they have limitations on how many retailers they will allow within a certain geography. The answer is 1, although the geographical dimensions may vary from manufacturer to manufacturer. Would a manufacturer allow for two stores in the same mall? No, because one would lose - both would engage in a price war until one died. The Internet has made the world one big mall, so everyone has been in a massive price war over the last 3-5 years and margins are being contracted and killing companies off one by one. It's an environment where very few companies within a particular industry can succeed. It provides perfect information to the consumer. In the short term, it's great for the consumer because it means that consumers get things at the lowest possible price. However, this is very bad for most businesses because too many companies can't make any money. The winners can, and that is great; I'm simply saying that it is creating too few winners. I am not saying that the Amazon tax is necessarily the solution, but the Darwinistic nature of the Internet is currently hurting our economy. It's putting too many companies out of business through margin contraction caused by price wars.

The Internet has, over the last couple years, gone from a technology that is having a net increase of jobs and unique revenue streams on our economy to one that is having a net decrease. It is creating massive consolidation across all industries and all geographies, all at the same time. However, the world has never seen this pace and breadth of consolidation all occuring at the same time, and it is starting to have a devastating effect on our economy and the world economy. I'm a big believer in the Internet and its ability to help our society. Over the long run, and up until this point, it has and will continue to make the world a much better place. But, we have crossed over - right now, we are in a period where it is hurting rather than helping. So whether the Amazon tax is the right solution or not, I don't have an opinion. But I agree with what they are trying to do. They are trying to save jobs by creating a solution where more businesses can succeed, and that in my opinion, is what the world, and America needs right now - we all need more businesses that can succeed so we can all have jobs. And it's not just the local retailer itself or its employees that are being killed. It's the commercial real estate company, the insurance company, the cleaning company, the hardware store, the sign company ... etc, etc, etc. There are a whole ecosystem of industries that are being affected by the fact that much fewer consumers are actually going to stores to purchase items.

I understand the counterargument about evolution and progress, and the "this philisophy would have prevented us from developing the automobile because it put horse and buggy companies out of business". I am simply suggesting that the pace and breadth of consolidation created by the Internet is too large at the moment for our society and the economy to handle. You can apply the same philosophy that the government uses to block two large companies from merging. Too much consolidation of power is bad for the economy, society, and eventually the consumer in the long run, even if it is obtained through legal and fair practices. There is a balance, and at the moment, we are out of balance in my opinion. Like I said, just walk down the street and look around. Are you truly happy with this new equilibrium?

Jul 07 08:30 AM

[rrtzmd:]

..."a way to save local businesses"?..."has to do with the unemployment level."....oh, lordy!...what fairyland do you live in, bud?...it has NOTHING to do with either of those things...it has to do with lazy, incompetent state legislatures and state treasurers refusing to deal with the realities of budgets...it's easier to attack Amazon -- and get your face plastered on the frontpage and opening nightly news -- than it is to deal with the REAL issues of a slowing economy...and the REAL issue is simply one of CUTTING the budgets!...but how often do you hear politicians suggest that?!....as far as helping businesses succeed in competing with the internet -- that's EASY!...CUT business taxes...CUT the unemployment taxes...CUT the red tape invloved in starting and running a business...CUT property taxes for brick and mortar businesses...calculate the difference and see how much business profit margins would improve IF politicians REDUCED taxes versus just looking for MORE things to tax!!...


On Jul 07 08:30 AM Network Effect wrote:

> Or it's a way to save local businesses who pay state income taxes,
> and provide jobs for local people who pay state income taxes. In
> my opinion, the Amazon tax has nothing to do with tax revenues generated
> from Amazon or any other out of state retailer who currently sells
> their goods and services to in-state residents. It has to do with
> the unemployment level. ......

Jul 07 09:02 AM

[Network Effect:]

@rrtzmd - i actually agree with you - less government, and less taxes is the answer over the long run. as I stated, I wasn't making a statement regarding whether I thought the Amazon tax was the solution to the problem. I was simply making a statement that I think that we have a major problem on our hands caused by the massive consolidation that the Internet is creating. In theory, I like your idea - cut government budgets and taxes for local businesses - make it possible for a lot of companies to be profitable owning or renting a local storefront that employs locals by cutting their costs relative to their Internet counterparts. I don't pretend to understand what it costs to keep our roads paved, and bridges from collapsing, and all the other things that states need money for. But, in theory, I agree with you. However, it cannot be something that applies to all businesses, just local ones. you cannot do the same thing for Internet retailers because it will not have the desired impact of allowing local businesses to succeed. I just think that something needs to be done to change the current status quo because currently, consolidation is occuring at an unhealthy pace. it's my opinion that we are headed for deep trouble if nothing is done.

Jul 07 09:30 AM

[armny:]

NY is the land of taxes. Not only does NY collect taxes on online purchases if the seller has an 'affiliate' in the state, they also ask for an amount on your income tax to cover online purchases! Heaven forbid if you leave the amount blank on your tax form!

Jul 07 11:29 AM

[Old Trader:]

Expect to see more dubious tax legislation to pop up as states frantically grasp at any straw(s) to try to plug budget gaps. Especially, if the tax is targeted at business (especially a big one), rather than at individual taxpayers.

Jul 07 07:14 PM

[bigmoney:]

Amazon rocks, in part due to tax advantage. I'd almost be for sales tax, but guaranteed the state legislatures are just going to pork up even fatter. More bloat, more heartburn, more pepto. Government really needs to go on a diet.

Jul 07 11:39 PM