"[O]riginally heard about" is a weak analogy. The issue with Associates is that actual money is changing hands. It's almost like having a storefront physically in NC, which would traditionally require a multi-state retailer to collect sales tax in that state.
I am a very anti-tax individual overall but the cross-state-delivery sales-tax loophole, which advantages distant sellers, has grown with the rise of e-commerce and efficient long-distance shipping to now seriously distort economic activity.
Why should a distant seller have an 8+% cost advantage over local sellers? Why should extra fuel/pollution/time be expended because of that jurisdictional anomaly?
Consider the similar case of NewEgg vs. Amazon for purchases by California residents. Amazon has subsidiaries in California. Amazon employs people in California. Amazon advertises in California. Amazon enters into long-term business agreements with California residents and businesses, including through the Associates program.
But because of some legal maneuvering, and keeping a few offices and warehouses outside California, Amazon can avoid collecting sales tax, while NewEgg must. Simply because NewEgg has more operations in California -- operations that are already subject to payroll, property, and income taxes -- it also faces an extra tax on each customer transaction.
(And as much as I would like to eliminate sales tax for all merchants, the state's legitimate activities have to be financed somehow, and often the alternatives to a broad consumption tax like a sales tax are even worse: higher income or property taxes.)
The best constitutional solution would be for the federal Congress to equalize the playing field somehow. (Note also that if the sales tax base is broadened, the rate can go down.) But until that day, I don't blame states that see large-scale retail, contractual, commission-paying, operational activity happening inside their own borders and say: this counts as in-state commerce, and should be treated the same as other retail activity.
It's almost like having a storefront physically in NC, which would traditionally require a multi-state retailer to collect sales tax in that state.
It's nothing like this. This isn't about NC wanting to collect sales taxes on purchases made by buyers in NC. And while Associates are involved, they're not involved in the purchase at all. They simply forward traffic to Amazon and if the customer buys, they get a commission. This is completely different from a retail store that's holding inventory from vendors and handling the actual transactions with customers. This is quite literally just like hearing about something from someone. If I live in NC and I send an affiliate link to a friend who lives in NY for a book on Amazon and that friend purchases it, NC is claiming they're owed sales tax on that sale. That makes zero sense. They're taxing my income on the commission, which is enough.
I think you are misinterpreting the law. As I understand it, the law is both better and worse than your interpretation.
Better, in that your hypothesized shipment to NY won't be subject to NC sales tax -- only the payment of the commission occurred in NC, not the sale.
Worse, in that all shipments to NC residents will be subject to sales tax -- even if those sales did not start with an in-state Associate referral.
In the view of the law, the presence of the in-state Associates means that Amazon has a paid sales force operating inside the state borders. That, just like having offices or warehouses or storefronts, makes Amazon liable to collect sales tax on all sales into NC.
They are paying people and facilities inside NC to help them sell. In some cases -- and I imagine those cases that generate the most commissions -- the in-state facilities display product names, pictures, descriptions, and prices. Sounds enough like a 'storefront' to me that Amazon should pay the same taxes as their in-state competitors.
It seems like reality has outgrown the individual states sales tax regime. The current tax system sounds like it contains ridiculous levels of distortion. Seems like time to rewrite.
California residents who purchase from Amazon owe a use tax. Nevada Residents don't. The rationale is that if you are charging out of state residents sales tax when they don't pay it in their state, then they won't do business with you - unfairly creating an advantage for merchants in other states.
>Why should a distant seller have an 8+% cost advantage over local sellers?
States don't have to have an 8+% sales tax. Some states (at least Oregon last time I checked) don't have any sales tax. There are other ways to collect taxes, which, in addition to not punishing local retailers, are less regressive.
Without a sales tax, a state has to have higher income tax or property tax levels. Both can do more to drive away high-value industry than broad-based consumption taxes.
But if a non-regressive tax system is your goal, let's analyze Amazon's loophole for its progressivity:
Who benefits most from tax-free online shipping? It's definitely not the poor, who don't spend a lot on high-dollar, easy-to-ship-across-state-lines products bought with credit cards.
When rich people use this loophole to save money on their books/ipods/electronics/housewares, in-state retail businesses that employ less-skilled people and pay other taxes shrink. Because the transaction base is smaller, if there is a sales tax, the rate has to be higher -- and that covers things poor people buy with cash.
There might be a federalist argument for preventing individual states from compelling sales tax collection, even if states are allowed to charge a use tax or delivery fee. But there's no progressivity argument for using the tax code to favor distant online retailers over local businesses.
>Without a sales tax, a state has to have higher income tax or property tax levels. Both can do more to drive away high-value industry than broad-based consumption taxes.
Of course you have to raise other taxes or cut spending if you do away with sales tax. TAANSTAFL.
>But if a non-regressive tax system is your goal, let's analyze Amazon's loophole for its progressivity <snip>
Only in the presence of state sales tax. No sales tax = no advantage for Amazon.
> Why should a distant seller have an 8+% cost advantage over local sellers? Why should extra fuel/pollution/time be expended because of that jurisdictional anomaly?
Part of the argument for sales tax is that it's recovering costs that the state pays to support the biz. You know, things like police and fire.
Technically, Amazon isn't paying the tax, it's collecting it. The NC customer is paying the tax.
And if NC is like other states with which I'm familiar -- CA and TX -- the resident already owes a 'Use Tax' on the items bought from Amazon. That tax is hard to enforce, and most people think nothing of ignoring it -- so in a sense Amazon is just assisting tax evasion by the residents who do use NC services.
Use taxes weren't imposed until after states noticed out of state purchases and were justified on the basis of "we're not getting sales taxes". Hence it's reasonable to look at the justification for sales taxes.
I am a very anti-tax individual overall but the cross-state-delivery sales-tax loophole, which advantages distant sellers, has grown with the rise of e-commerce and efficient long-distance shipping to now seriously distort economic activity.
Why should a distant seller have an 8+% cost advantage over local sellers? Why should extra fuel/pollution/time be expended because of that jurisdictional anomaly?
Consider the similar case of NewEgg vs. Amazon for purchases by California residents. Amazon has subsidiaries in California. Amazon employs people in California. Amazon advertises in California. Amazon enters into long-term business agreements with California residents and businesses, including through the Associates program.
But because of some legal maneuvering, and keeping a few offices and warehouses outside California, Amazon can avoid collecting sales tax, while NewEgg must. Simply because NewEgg has more operations in California -- operations that are already subject to payroll, property, and income taxes -- it also faces an extra tax on each customer transaction.
(And as much as I would like to eliminate sales tax for all merchants, the state's legitimate activities have to be financed somehow, and often the alternatives to a broad consumption tax like a sales tax are even worse: higher income or property taxes.)
The best constitutional solution would be for the federal Congress to equalize the playing field somehow. (Note also that if the sales tax base is broadened, the rate can go down.) But until that day, I don't blame states that see large-scale retail, contractual, commission-paying, operational activity happening inside their own borders and say: this counts as in-state commerce, and should be treated the same as other retail activity.