For the past 9 months, I have been following the implications on small business as the states attempt to use their constitutional right to nexus provision to extend their taxing power to the Internet. Today the Providence Journal, the premier daily newspaper for the informed Rhode Islander, finally discovered and carried a story about the "Amazon tax" and its impact on a small business here in Rhode Island. Under the headline Small businessman says R.I. ‘Amazon law’ hurts him
If you have been following this blog, you will have read about my problem with the "Amazon Law" It put my own e-business plans on hold.
The Projo could have been more helpful and informative to the public, if it had picked up on and reported the story earlier. It also could have done a better job informing its readers if it put the story in its broader national context.
The "Amazon law" is a national problem, not just a Rhode Island problem. It is the law requiring out of state internet vendor's to collect sale taxes on goods and services sold to resident in the taxing state.
This is a common requirement for firms doing business in multiple states. For example, if you purchase a big ticket item from a company in Massachusetts that also does business in Rhode Island and the item is to be delivered and used in Rhode Island, you will pay the Rhode Island sales tax on the item. Why do you think the clerk asks for your zip code?
The problem comes when a vendor does not have a physical or business presence in the state. Under the nexus principle, that vendor would not be required to collect the sales tax for the taxing state. Amazon does not consider its affilates as employee or agents. Therefore Amazon and similar out of state vendors do not feel that they have representatives in the state, specifically in this case Rhode Island and are under no obligation to act as Rhode Isalnd's tax collector.
The Rhode Island legislature decided that any RI website which carries ads for Amazon or other e-commerce companies is an employee or agent for the companies whose ads they carry. This is sufficient grounds to require the parent firm to collect sales for the state on Rhode Island on all goods sold to Rhode Island residents.
In my case, I wanted to rent space to Amazon on my website to advertise their products. I felt that I was supplying a billboard as a way to help pay for the operating costs of the site. Amazon decided this imposed a potential tax and administrative burden on them. To avoid the issue, they and others have chosen to eliminate that risk by severing their ties to their affiliates. As a result, Amazon will continue to sell to Rhode Islanders and Rhode Islanders will continue to buy from Amazon.
However, Rhode Island businesses that depend upon the rental revenue they earned by allowing Amazon and others to advertise on the their site no longer have that revenue source. As the Projo story documents, they make less income and pay lower taxes. Meanwhile, because these sales outlets no longer sell for Amazon, B&H and other e-commerce firms, Rhode Island collects no new sales tax revenue.
Reading the comments to the Projo story shows how poorly the readers understand the issue and how poorly the Projo explained the issues. It is no wonder that more and more of us seek our news from more aggressive and informed sources.
1 comment:
Great post, Barry. Steve Peoples and Neil Downing first wrote about this on June 30, 2009, directly after the state's decision. I was one of those interviewed for the piece. I am thrilled to see that Mr. Downing has continued to cover this farce of a law and the results of its unintended (but should have been expected) consequences.
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