Sunday, June 28, 2009

Taxing Internet Comerce

In another example of the law of unintended consequences, a new bill in North Carolina, demanding that out-of-state Internet retailers start taxing their customers, has led to results that are not going to endear legislators to their North Carolinian constituents.

In the 1992 Quill v. North Dakota decision, the Supreme Court determined that states could not force tax collection obligations on out of state merchants. However, North Carolina has a pending bill that will demand that Amazon start taxing their clients despite the fact that it has not a physical presence in the state. The legislators got around it by claiming that Amazon has affiliates in the state that link their site to Amazon.

For those of you not familiar with Internet commerce, many businesses link to Amazon to sell their products, especially used books stores.

As the Wall Street Journal writes:
To its credit, Amazon yesterday refused to accept the expected new
compliance burden and announced the cancellation of its North Carolina affiliate
relationships. Said the company, "This is a direct result of the
unconstitutional tax collection scheme expected to be passed any day now by the
North Carolina state legislature (the General Assembly) and signed by the
governor." So now the state won't get the revenue, even as in-state Web
retailers lose their ties to Amazon thanks to the legislature's revenue grab.

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