Investor’s Business Daily just published a brief article reiterating what we have been saying for a while: affiliate nexus laws are generally ineffective at increasing revenue.
The article covers most of the stakeholders’ views, including comments from Joseph Henchman of the Tax Foundation, Danny Diaz from the Alliance for Main Street Fairness, and Neil Osten from the National Conference of State Legislatures. The article even briefly refers to the Main Street Fairness Act, which will be introduced in Congress soon.
Strangely, the article fails to mention all the fireworks in California right now. As we (and many others) have been writing about for the last few days, last Friday Amazon reportedly filed papers with California’s attorney general for a referendum to repeal California’s recently enacted ABX1 28.
Under ABX1 28, the California Board of Equalization estimates, Amazon could collect and remit approximately $83M in sales tax this year; together, it projects, all remote retailers could collect about $200M. Of course, those BOE estimates apply only if Amazon and other online retailers actually comply with the new law—a reasonable expectation given that noncompliance is . . . oh, what’s the word . . . illegal (for the rest of us internet retailers, anyway). Now the internet has lit up with blog posts and tweets as well as print and broadcast media articles and editorials either praising or demonizing Amazon for refusing to collect sales tax and comply with California’s new law (don’t miss the exciting article in the Fresno Bee today).
As we said before:
While we appreciate and respect California’s need to fix the current imbalance related to sales tax collection obligations, which costs the state over $1.1 billion annually, we sincerely hope those entrusted to do the people’s work in Sacramento recognize that this matter must ultimately be resolved in Washington DC.
Under the Supreme Court’s 1967 National Bellas Hess vs. Illinois Department of Revenue ruling, the ability of states to compel remote or out-of-state businesses to collect local sales tax hinges on minimizing (or eliminating) burdens implied by such an obligation. In its majority opinion (now forty-four years ago), the Court ruled that
the many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle National’s interstate business in a virtual welter of complicated obligations to local jurisdictions.
So, unless and until California directly addresses these three points of undue burden, attempts to compel remote retailers to collect will not likely survive litigation and judicial review.
Fortunately, California has been working with 43 other states on the Streamlined Sales and Use Tax Agreement since 2000 —a system that alleviates all of these burdens (and is FREE for retailers to implement). Governor Brown and the California legislature should urge California’s delegation in Congress to sponsor and work to pass the federal Main Street Fairness Act, which would eliminate the need for California to venture into such controversial interpretations and extensions of the concepts of nexus and would finally enable California to require out-of-state retailers to collect sales tax, just as any local retailer is required to do.
Ironically, Amazon yesterday announced it would be releasing a tablet device (like an iPad) by October. The California BOE is likely wondering if this new tablet was developed by Amazon’s Lab126 in Cupertino (the birthplace of the Kindle).