Massachusetts considers affiliate nexus bills

Massachusetts is considering two bills, one from the House and one from the Senate, that would require online retailers with Massachusetts affiliates to collect sales tax.

According to this article in the Cape Cod Times, a University of Tennessee study puts Massachusetts’ annual sales tax losses at $11.4 billion by 2012. The same article states that the senator sponsoring the bill, Senator Steven A. Tolman, hopes to recover that money in order to fund services that have been cut due to the recession:

Tolman said the tax money is needed to invest in state programs that had to be cut in the recession.

“In these times of tight state budgets and the reduction or elimination of many state-funded programs, Massachusetts can no longer afford to subsidize Internet and catalogue retailers by not collecting sales tax on purchases made by residents of Massachusetts,” Tolman wrote in an email.

Tolman said what essentially are tax-free sales gives online vendors an unfair advantage over bricks-and-mortar stores.

“The current law penalizes Massachusetts’ main street retailers and gives those without a physical presence in Massachusetts a 6.25 percent head start,” he said.

Michael Mazerov, an official from the Center on Budget and Policy Priorities, also commented on states’ need for sales tax revenue:

“State and local governments are losing billions of dollars a year in revenue that they need to provide education, health care, police protection and a whole other range of services,” he said.

Mazerov said the government is already entitled to this tax money; its absence has added to state budget woes.

“Particularly now, with the downturn of a depressed economy, local governments are losing lots of revenue that they’re legally entitled to receive,” he said. “These are not new taxes. We are talking about collecting sales tax on things that are taxable if you buy it in the store.”

Both Tolman and Mazerov make good points, and we agree that online retailers should collect sales tax, just as local retailers do. However, we don’t believe that bills like these, which target online retailers that use affiliate marketers, are the best solution.

When other states have passed these kinds of affiliate nexus laws, online retailers have responded by simply ending their affiliate relationships in the state. These laws end up hurting small businesses in the state that rely on affiliate marketing income and do not bring in any additional sales tax revenue.

A better solution is the Streamlined Sales and Use Tax Agreement (SSUTA) and the federal Main Street Fairness Act. States that join SSUTA implement its sales tax guidelines to make collecting sales tax for more than one state easy for retailers. The Main Street Fairness Act would, in turn, allow SSUTA member states to require online retailers to collect sales tax.

It makes sense: Only those states that have made it easy for online retailers to collect sales tax would be allowed to require online retailers to do so, and retailers with affiliates wouldn’t be singled out.

Everyone would play by the same rules. And isn’t that the best solution for everyone?

One Response to Massachusetts considers affiliate nexus bills

  1. Kumar says:

    To quote Einstein, “Doing the same thing over and over again and expecting different results” is a mark of insanity.

    All the valiant efforts to plug the pernicious inequity of the online sales tax loophole at the state level have either failed at the legislative level or have been rendered impotent by aggressive counter measures adopted by Amazon like cancelling affiliates etc.

    Although the federal Main Street Fairness Act of Sen.Durbin/ Sen.Enzi might appear to be the answer, I am not sanguine about its prospects and it will likely die silently like Rep. Delahunt’s efforts in the last congress. And I don’t think there will be any support from Obama who will not wish to alienate his hi-tech supporters like eBay & Google who oppose this legislation.

    Expecting legislation to end the sales tax inequity has been a sad tease for many years and all the waiting for matters to change only guarantees hollowing out of main street retail and before long Best Buy will follow Cicuit City to Big Box heaven.

    Therefore, the B&M retailers seeking to end the online sales tax loophole should re-think their tactics & strategy.

    One way is to push for abolition of sales taxes for all items which are online buyable like electronics, books, appliances, shoes, clothes, diapers, etc. (food/groceries & prescription meds are exempt in most states). This should garner popular support and resonate with the anti-tax sentiment of the tea party crowd.

    Additionally, big box brick & mortar should spin-off their online operations and headquarter them in no-tax states and derive revenues from brand licensing, logistic services like warehousing, pickup & returns and other legal arms-length nexus-isolated arrangements where both B&M and its independent online avatar can synergestically benefit. An example would be, Barnes & Noble, there is no reason for its Big Box bookstores and Nook/eBook operations be one entity. B&M Barnes&Noble can continue as a physical bookseller while deriving revenues from an independent online Barne&Noble thru brand licensing fees etc.

    Only when states face the clear & present reality of vanishing revenues will this issue garner any urgency.

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