Grand Theft, Part One: Sales Tax Comes to the Internet For Certain

[SEE UPDATE AT END OF ARTICLE]

Sales Tax Comes to the Internet For Certain: It’s true.

Tonight I went online to send a birthday gift to a friend in New York. When I went to the ‘checkout’ screen, a big red-lettered notice came up saying as of June 1, 2008, sales tax will be applied to all purchases being shipped to New York, no matter where they originate from

This new NY state law of taxing internet purchases and trades… was initiated by Eliot Spitzer and signed into law some days ago by the acting Governor, Paterson …since Spitzer was rather literally spit out of office for being involved in a prostitution ring…after a career of legally pursuing prostitution rings to bring them to justice.

from Big Mouth Media

New York tax law is already confusing enough. Not only do the rates change unexpectedly, get completely dropped or even disappear entirely at certain “tax holidays” throughout the year, now New York is trying to get a piece of the online pie.

The new tax law for affiliates started with the former governor of New York, Eliot Spitzer who was recently forced to resign from his post after being linked to an high-priced prostitution ring. The law which requires that Amazon and other online retailers collect New York sales tax, did not disappear along with the resignation however, as the new governor Paterson could clearly see the revenue potential of taxing New York based affiliates.

This new law is a huge blow to big online retailers like Amazon.com who have already been fighting the issue with a lawsuit against the state of New York, which was filed in early May.

Other retailers have already started dropping their New York affiliates to avoid the issue altogether: Borders, the mammoth book and music retailer, has announced it will begin selling its own products online.

Complicating things further, the suit filed by Amazon begs the question – how important is location in the internet age? Locations across the globe are accessible by a simple Google search, creating the potential for consumers to buy anything from anywhere. Affiliate programs such as Amazon, Overstock and countless others have simplified the seeking out of merchandise for consumers. Why should a Seattle-based company like Amazon be required to collect New York taxes on behalf of a state the retail giant doesn’t even reside in?

As of today, Overstock.com has also sued the State of New York.

And… in the meantime, All I know, is that tonight is the first time I have EVER paid sales tax to another state for an online purchase… ordering from a company in Chicago an item no doubt made in China, ordering it from my office in the Rockies, and said item being sent to Manhattan, crossing at least five state lines in the process.

UPDATE I spoke to a legal eagle in NYC tonight, and it seems that up at the NY State capital, Albany, there are issues about apportionment of state monies, with various long serving government workers going without raises for years, (more than 5-8 years in some cases), while various parts of the state fall into disrepair for lack of funds.

At the state capital there are, apparently, various ideas about how to extract new revenues. Some say there is a ‘tax and spend’ mentality at the capital. Some attribute this to an overage of Democrats in the state congress. Some say legislators spend and spend, but not necessarily for ‘the right things’ such as infrastructures, wages and decent benefits.

Some charge incompetence at the Governor’s level. Other charge the entire legislature with not facing hard issues years ago and preparing, but rather feathering their own districts’ nests. Timeless issues of inattentive governance at best.

One of our commenters at TMV wonders how New York state will collect and gain oversight of companies not located in New York… I can only imagine NY would demand that a large company like Amazon allow a regular audit of their NY shipping records. But, I just don’t see Jeff Bezos taking that lying down.

For now, NY is only concerned with purchases from companies in other states in the US, theoretically meaning big internet corporations could do a huge work around… by warehousing and shipping from off-shore US, or overseas. Way to go NY, creating job loss in the US as warehousing moves overseas or drop ships from point of product’s manufacture overseas. No import taxes to US government then, either. Goodness.

We can see that the state governments, like the giants in the publishing industry too, who are now struggling financially from having overbred marginal books while keeping editorial labor costs high… didn’t know how to imagine, develop, exploit the jillion-armed Internet, didnt see the profound possibilities of e-commerce, didnt see the huge explosion of work and production not being limited by time-zones, consistent legal intrusions, didnt see that the history writers of the next century will mark the 1970s as the beginning of the shift, and that those who waited and waited to join, deteriorated or were plowed under. Buggy whip mentality in a time of Mar’s landing.

The dethroned Governor Spitzer and his replacement both said they had to have this law to ‘even the playing field’ with other states, and ‘those years that Amazon, for instance’ has made off with money that really really belonged to NY.

Those attitudes suggest that NY’s aggressive move could turn into a turf war between states… as one state or another declares sovereignty over sales tax demand… at point of origination rather than destination.

I looked for info on presidential candidates and this issue and found nothing yet… except some website commenters who thought this tax was Hillary’s fault, not seeming to know she is not in the state legislature. Not sure about conflict of interest between a state’s business and the feds’ business if/when they might brush against each other. That may have kept Senator Clinton from commenting, but not Senators Obama and McCain.

I am interested in what some of the most fierce defenders of ‘the free range internet’ will do to react to New York’s stance and its effect on small businesses. Kiplinger newsletter thinks other states will follow suit after NY. But, I imagine Half-Price.com and Amazon, B & N and Ebay and others large internet sales corporations will tie NY State up in law suits for a long, long time to come, costing NY a ton of money to defend itself.

No doubt some will call this, as it is said in the law, ‘unintended consequences’ of NY not pre-imagining the blowback of their own law.

Certainly regarding Amazon’s margins and discounts, NY’s 8+% sales tax on internet purchases wipes out a good deal of buyers’ reasons for buying on Amazon, et al. At the same time, NY’s thinking from what I’ve read of the bill’s sponsors, was that THEN people would BUY all their items locally in NY instead. Leaving the internet behind. Sort of like putting away your computer and going back to your abacus.

Short-sighted, it seems, a way to slow business and discourage enterprise that has reach.

The question perhaps ultimately will wash out something like this: Who is stronger willfully and legally,
an income-starved state
or
a highly competitive corporation?

Apparently, for now, out-of-state retailers will be responsible for collecting and delivering NY sales tax if their annual revenue from internet sales or affiliate referrals is over $10,000. That seems penny-ante and a blow to small businesses: 10 grand gross revenue isn’t even poverty-level annual income. The hours a small business owner would have to give to record, transfer, set up another bank account, audit themselves quarterly, et al, would make that 10k gross less and less by years’ end.

In the end, that wont likely hurt big corps like Amazon. Just the little people. Again.

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h/t StockBoySF