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Amazon Vs. Internet Sales Tax

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As an Amazon Associate (you can see the banners even on this page), I have been following the spat between Amazon and the cash-strapped states that are legislating Internet sales taxes.

The states argue that Amazon Associates in their jurisdictions are tantamount to company branches constituting presence and therefore any sales made to their residents are subject to state sales taxes. Amazon counters that associates do not add up to physical presence and therefore it should not be required to collect sales taxes on behalf of those states.

To put its money where its mouth is, Amazon has terminated its relationship with affiliates in North Carolina, Rhode Island, and Hawaii and has vowed to do the same in other states where such laws are passed. California, for example, is one such state that Amazon could axe its associates if the state decides to go through with an online sales tax law.

Admitting bias in this debate, I think Amazon is right and the states are being short-sighted for something that doesn't amount to much money anyways. By pushing Amazon and others into terminating their resident associates, not only would they lose potential sales tax dollars, but they would financially harm their own residents who would most likely spend their earnings in their own states as well as pay income tax on their Amazon earnings.

Online affiliates should be considered nothing more than advertising vehicles. If a company places an advertising in a state's newspaper, that doesn't constitute presence. A Web page is just like any other publication, the only difference being that it's online.

There are other factors that complicate matters even more. What if the Web servers used by an associate are housed in a state different than the associate's residence? Suddenly that state may want a piece of the sales taxes too. What if an associate has a second home in another state where weekends are spent tweaking the Web site?

In the end, if many states succeed in passing Internet sales tax laws, Amazon will most likely pull the plug on its associates program completely. Or it may decide to only work with associates from a handful of states that are too lucrative to walk away from. That may be bad for Amazon, but it's even worse for those states that would in fact cut off their residents from a source of income, possibly forfeiting tax earnings to other states who may be wise enough not to pass such laws and, as the result, harm their residents and ultimately themselves in the process.


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