Amazon leads the fight against Internet State sales tax efforts

Recently, it came to light that another State legislature was looking into ways to impose some form of Internet sales tax scheme on out-of-state merchants doing business in Hawaii. The Hawaiian State lawmakers are considering either a plan requiring Internet sellers to give the State customer information regarding Internet purchases, or alternatively, enroll in a multistate program wherein sellers collect the sales taxes for the States that have signed-up in the program. The multi-state option being considered involves a total of twenty-four (24) states entering into a “Streamlined Sales and Use Tax Agreement” which would have the effect of adapting state tax laws and making it easier for Internet retailers to collect the taxes for the signatory States.

Last year similar legislation passed in the State of Colorado leading one of the world’s largest Internet merchants, Amazon, to drop its advertisers in Colorado. Mary Osako, a spokesperson for the company indicated Amazon would consider “doing the same thing” in Hawaii if the proposed legislation passes. She went on to say “Amazon opposes unconstitutional ‘click-through-nexus’ or reporting laws and, regrettably would be forced to end our contracts with associates in Hawaii if the state passed that type of legislation.”

According to a study released by the University of Tennessee, the State of Hawaii could stand to collect as much as $60 million dollars in sales taxes next year alone if the proposed legislation comes to fruition. For Internet merchants competing in a burgeoning market place, who may be wrestling with small profit margins, many are concerned new taxing efforts by States could damage an already fragile U.S. economy and put a lot of these businesses under.

What is perhaps worse is that larger Internet merchants, like Amazon, simply refuse to do business in the State and drop contracts with local affiliated advertisers and business partners in favor of doing business with others elsewhere in the U.S. or abroad. This in turn, according to most tax attorneys, further reduces tax revenues to the State and causes higher unemployment.

IRS lawyers and other tax experts list a host of problems associated with taxing Internet retail sales and fully expect most of these new sales taxing efforts will be fully tested in the Courts for years to come. Although it has not become an issue yet, such a move could end-up creating a lot of extra work for tax attorneys. Internet-based retailers could easily find themselves owing several States back taxes, or getting in trouble for failing to comply with reporting requirements (much like an individual might have unfiled returns and be subject to interest and penalties).

While retail stores in several States appear to be supporting Internet sales taxes to arguably level the playing field with their Internet competitors, the truth is more and more businesses are looking to expand their reach through various forms of Internet marketing and sales. So while it may make sense today, tomorrow the same Internet sales tax may negatively impact their businesses.

If you are an Internet retailer and have questions about sales tax, or any other tax related concerns, you should consult a competent tax lawyer and get the answers you need. Recognized this is a developing area of the law and there aren’t a lot of clear answers right now. That is why a tax attorney can be so important to your future business planning.


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