If you are an online vendor selling through affiliate programs to New York residents, and you sell more than $10,000 to New York buyers and sell through online affiliate sellers, you now are subject to New York taxes on such sales.
If you recall, I had written about this law before it was passed a few months ago (at the OPEN Forum).
It had been a pet project of former Governor Eliot Spitzer. But after he was ‘spitzered” and resigned in disgrace, I had hoped the proposal would languish and maybe even die.
No such luck.
This is one of those cases of protectionism where trying to protect one group hurts another. This has been positioned as helping brick-and-mortar sellers. Unfortunately, it hurts online sellers, many of which are small businesses. Dawn Rivers Baker hits the nail on the head:
The lobby for Main Street independent retailers — folks like the American Booksellers Association — is doing the happy dance, pleased with the victory and not feeling especially guilty about the false pretenses.
“Since 1999, the very start of our nationwide fight for e-fairness, this campaign has been about leveling the playing field for Main Street bookstores, who have had to contend with out-of-state online retailers that have skirted sales tax laws by offering consumers tax-free shopping,” said Oren Teicher, ABA COO.
Level playing field, my foot.
Those Main Street retailers never have to worry about more than one taxing jurisdiction, no matter where their customers live. Remote booksellers have to calculate the tax owed for all the different jurisdictions, which means they have to find out what county their customer lives in and what the sales tax is for that county, and that’s what they’d have to pay.
Amazon.com is fighting the law hard, because it makes so many sales through affiliates and will have to collect and remit sales taxes. Amazon.com has sued the State of New York, on the grounds that the law is unconstitutional. So we have not yet seen the end of this issue.
I hope Amazon prevails, because they will fight the fight for small businesses that sell through affiliate programs and for whom this law could be extremely burdensome. I have two reasons for being opposed to this law:
(1) I think this law will not have the effect that the brick and mortar sellers want. Online selling is not going away. People buy online for convenience and for wider selection, and not just based on price or whether the seller collects sales tax. Protectionism is always a poor substitute for free market forces.
(2) I see this as a slippery slope. Today, New York. Tomorrow, all 50 states. There are reportedly about 7,500 taxing authorities in the United States. What a nightmare if small vendors had to comply with all of them. Hmm, I think that’s why we have the interstate commerce clause of the U.S. constitution that prevents placing undue burdens on interstate commerce.
More at the Wall Street Journal. And there’s more at the Tax Foundation.