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1 Joseph Henchman, California Becomes Seventh State to Adopt Amazon Tax on Out-of-State Online Sellers 1 (2011)

handle is hein.taxfoundation/ffchgxz0001 and id is 1 raw text is: rAXM'- FOUNDATION I,' July 1, 2011 No. 276 California Becomes Seventh State to Adopt Amazon Tax on Out-of-State Online Sellers By Joseph Henchman Introduction Beginning July 1, California's Amazon law goes into effect. Named after their most visible target, these laws deem an out-of-state company to be an in-state company for sales tax collection purposes if the company receives commissioned referrals from in-state resident affiliates. The out-of-state company must then collect sales tax for the state. While 21 states have considered Amazon laws in the past three years, only seven have enacted them: Arkansas, California, Connecticut, Illinois, New York, North Carolina, and Rhode Island (see Table 1).' Our recent Special Report on Amazon tax laws2 explains why they expand state taxing authority in a manner likely to invite extended litigation, and that in every state, they have failed in their twin objectives of collecting additional revenue and creating a level playing field between brick-and-mortar and remote sellers. Amazon Tax Laws Seek to Expand State Taxing Authority States are constitutionally barred from forcing retailers with no property or employees in the state to collect state sales and use taxes. Otherwise, the U.S. Supreme Court has held, there is a serious threat to interstate commerce as states try to impose thousands of state- and local-level sales taxes, each with different rules. States are frustrated with this limitation of their ability to tax sales made out of state to in-state residents, and have sought federal legislation to overrule it, known as the Main Street Fairness Act. Rather than joining this effort or acquiescing to the Supreme Court's ruling, New York and other states have chosen to defy it in enacting these Amazon taxes. Supporters seek to build upon a series of Supreme Court cases where the Court permitted states to tax companies if their presence in the state depended on independent contractors who made sales. However, the Court described that situation as the furthest extension of state taxing power, and affiliates do not engage in direct solicitation nor are they crucial for Amazon.com's market in states. (In New York, for example, their referrals are only 1.5% of the company's sales.) Joseph Henchman is Vice President of State & Legal Projects at the Tax Foundation. 1 Colorado has adopted a modified form that has an expanded nexus definition but relies on disclosure obligations instead of mandating collection. 2 Joseph Henchman, 'Amazon Tax' Laws Signal Business Unfriendliness And Will Worsen Short-Term Budget Problems, Tax Foundation Special Report No. 176, March 18, 2010, http://www.taxfoundation.org/research/show/25949.html.