Last week the Internet retail giant Amazon reached a deal to collect sales taxes in California, but in June it ended its relationship with online affiliates in Connecticut after the state passed a budget requiring all online retailers to remit sales taxes to the state.
Connecticut Gov. Dannel P. Malloy said he believes the Nutmeg state’s decision will help convince Amazon to begin collecting sales taxes here too.
“This is a movement,” Malloy said Saturday. “I told you all that I was prepared to play a leading role in the movement.”
“Obviously they have the market impact because let’s be honest Amazon wasn’t going to turn off every local supplier in the state of California,” Malloy said. “But as we get more states to join us it will be easier to get the states to cut that kind of deal.”
With struggling states looking for new revenue opportunities, Amazon’s $34 billion in mostly untaxed annual revenue was an attractive target, especially this year when many state‘s like Connecticut struggled to close budget gaps. The tax is projected to bring in about $9.4 million, if Department of Revenue Services Commissioner Kevin Sullivan is able to collect it.
In the years since Amazon started the affiliate program—which allows companies to publish links to Amazon products in order to earn a commission on any business they send to the online retailer—hundreds of millions of people have grown comfortable with the idea of using credit cards online, and the amount of money spent on the Internet has exploded. Consequently, billions of dollars in yearly retail purchases have moved out of the local brick and mortar stores — where sales taxes are charged and local jobs are dwindling — and up to the tax-free cloud where software has replaced most of the jobs. Amazon and 50 other online retailers ended their relationship with Connecticut affiliates in June.
Many brick and mortar retailers have long contended that Amazon’s lack of retail space gives the online retailer an immediate 6.35 percent price advantage as they are not required to collect sales tax. Amazon currently collects sales tax in four states where they have a physical presence: Kansas, Kentucky, North Dakota, and Washington state.
But Amazon also collects sales taxes in New York – the result of legislation passed in 2008 that declared affiliate marketers as a physical presence for the purposes of sales tax collection. Amazon is contesting the law but thus far has been unsuccessful in overturning it.
“There were people being pretty roundly critical of the step that Connecticut was taking, but it was a vital step in getting other states to do that same,“ Malloy said.
In addition to Connecticut, Arkansas, Colorado, Illinois, Rhode Island, and North Carolina have all passed legislation to require online retailers to remit sales taxes. Legislation is being considered in Minnesota and a handful of other states.
The one difference between California and Connecticut is that Amazon is looking to build a physical presence, a large distribution center, in that state. It has also been in negotiations with Texas because of plans to build a distribution center there too.