It’s often been observed that states are serial copycats when it comes to laws. A law usually starts in California or New York and within a few years, the rest of the union has passed their own versions of that law.
Something like that may be ramping up regarding the so-called Amazon Tax. These laws, with the first being passed in New York in 2008, revolve around the legal term of nexus, the ties between an entity (a corporation in this case) and a political jurisdiction (a state for this law). A state can only collect sales tax if the entity in question has sufficient nexus. The Amazon Tax establishes that affiliate programs constitute nexus for this purpose.
In 2008, New York passed its Amazon Tax. In 2009 and 2010 similar laws came up through the legislatures of about two dozen states. By the beginning of this year North Carolina and Rhode Island had passed their own Amazon Tax laws and Colorado had passed a modified form.
In the first five months of this year, two more states have passed their own affiliate tax laws, first Illinois and more recently Connecticut. Currently affiliate bills are in play in a number of states.
From a tax law perspective, the rise of these affiliate tax laws paints an interesting picture. In many ways, they have almost on immediate effect, except on those individuals with affiliate marketing agreements with companies like Amazon and Overstocked.com. This is because in every state where an affiliate tax law has been passed, except in New York where Amazon’s legal challenge of the bill is ongoing, affected companies have responded by cutting their affiliate ties and thus avoiding having to collect sales tax.
There has been a push–and companies like Amazon have voiced their support for such an idea–for a national solution to the online sales tax question. In the wake of the economic crash of 2008, many states are hurting for revenue and online sales tax would certainly help that situation. Senator Dick Durbin (D-IL) has proposed a national law that would allow states to charge sales tax on out of state companies who sell products online, but as yet this bill has not been submitted to the Senate.
Amazon and similar companies have put their support behind a proposal that’s a few years old called the Streamlined Sales Tax Initiative. The idea is this. States agree to uniform sales tax guidelines, as opposed to the discordant and numerous jurisdictions that exist now, and in exchange they gain the power to tax online retailers. To date some 23 states have agreed to this plan.
For more information on sales tax, the Amazon Tax, and how the affiliate tax laws affect you, contact the Chicago tax lawyers at Horowitz & Weinstein.