Connecticut is wrong to pursue Amazon for past uncollected sales tax

October 10, 2011
Hartford, CT capitol building

Hartford, CT capitol building

According to an AP article, Connecticut claims that owes the state for past uncollected sales tax:

Connecticut plans to press Amazon for the taxes the state believes it should have collected at least during the month or so when the new law was in effect and Amazon still had affiliations with websites in Connecticut through its Amazon Associates Program. Amazon severed those ties in June. . . .

Connecticut plans to evaluate some other connections Amazon has with people in the state and start building a case that Sullivan predicted will ultimately be decided in court. (emphasis added)

But unless we’re missing something, the dates just don’t add up.

  • Governor Malloy signed the new budget bill on May 8.
  • On June 10, Amazon sent letters to its associates in Connecticut terminating its contracts with them.
  • The so-called Amazon Tax, as part of the state budget, went into effect on July 1.

What are we missing here? Is the month-long overlap that Connecticut claims actually between the date the budget bill was signed and the date Amazon terminated its Connecticut associates program?

Amazon ended its associates program twenty days before the law went into effect. So Amazon did not have associates in the state when the law went into effect, and therefore it doesn’t owe the state for any uncollected sales tax that would have been due under the law.

Connecticut officials are suggesting that they will ultimately end up bringing a lawsuit against Amazon. Unless they have another argument to offer, we question their standing to bring such a claim. There’s just no way that Amazon had in-state associates when the law went into effect.

Amazon ends affiliate relationships in Connecticut

June 10, 2011
Stamford Advocate

Stamford Advocate: Amazon ending business relations in Connecticut

An article in the Stamford Advocate (CT) reveals that Amazon has joined Overstock in ending its affiliate relationships in Connecticut in response to a Connecticut law requiring online retailers with affiliates in the state to collect sales tax.

The move wasn’t unexpected—Amazon has ended its affiliate program in nearly every state with an affiliate nexus law, and Overstock did the same over two weeks ago. But we are sad to see it happen. Many small businesses rely on income from affiliate programs:

A [Stamford Advocate] reader, Jim Cameron, sells books through his website “CT Yankee Books”, forwarded the email [from Amazon terminating his affiliate contract] to Hearst Connecticut Newspapers.

Cameron said in his email, “For a few years now I’ve had a hobby of collecting and re-selling old books online. Today, I was put out of business.”

It’s particularly unfortunate because there is a much better solution for states, affiliates, and retailers: federal legislation in the form of the Main Street Fairness Act.

The Main Street Fairness Act would let states require online retailers to collect sales tax, as long as the state has adopted sales tax simplification measures that make it easy for retailers to collect sales tax in multiple states. It would solve the problem of uncollected sales tax for states without targeting retailers that use affiliate programs—so those affiliate programs would remain in place.

Only federal legislation will give states another solution and put an end to affiliate nexus legislation. We hope Congress is listening.

Two new bills proposed in Connecticut

January 20, 2011

The Connecticut General Assembly today introduced a flurry (pun intended—there is a lot of snow here right now) of proposed bills concerning sales tax. Two of these bills are directly related to collecting the taxes already due on purchases on internet transactions.

Proposed Bill Number 5545: Specifies that sales tax is due from an online retailer when the online retailer uses an in-state affiliate to sell its products.

Proposed Bill Number 5543:  Works toward putting in place an effective system to collect sales tax from retailers who sell via the internet or the cloud.

Although the texts of these bills are not yet known, it is pretty clear that Proposed Bill 5545 is affiliate nexus (“Amazon tax”) legislation, along the lines of the bill just passed by the Illinois House and Senate and the bill recently introduced in California. We’ve analyzed the drawbacks of affiliate nexus legislation extensively in previous posts on this blog.

Proposed Bill 5543 sounds more promising. Perhaps Connecticut is going to enact legislation to conform to the Streamlined Sales and Use Tax Agreement, so that all businesses (internet, affiliates, and brick-and-mortar merchants) are required to handle sales tax collection the same way. Check back on this blog for updates.