Will an Internet Sales Tax Hurt Online Retailers?

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The so-called “Amazon” Tax has become a huge national story as the online retail giant sent out messages to their affiliates in California announcing the end of the affiliate program there. Even though this new law has “Amazon” as a nickname, any online merchant with an affiliate program falls under its jurisdiction.

It was their affiliate program that gave California’s law jurisdiction over Amazon as they consider it a “presence” of the retailer in that state. Amazon, and online retail in general, has gained in popularity in part to the savings that come with not having to pay sales taxes on items purchased from retailers based in different states.

In 1992, the Supreme Court decided that in order for sales taxes to be collected, a retailer has to have physical presence within the state. This presence could include any business offices, warehouses, or physical stores within the borders of that state.

The new rules set in California redefines presence to include affiliates that make money by referring their audience to online retailers, including Amazon. In order to maintain a policy of providing products tax-free to their customers, they are forced to end affiliate programs in states adopting this new policy.

So, the argument might not be whether or not these taxes will hurt online retail. The fact is, local small business owners that make profits from referring people to online stores are being critically wounded by this policy. The point can and has been made that by imposing stronger taxes, the state is actually doing more harm than good to the local economy unless online retailers continue their affiliate programs and implement sales tax.

It should be noted here than many state and local governments do charge taxes for online purchases. Because they can’t tax the retailer directly, this tax is imposed directly to their customers in the form of a “use” tax. It’s the responsibility of the citizen in this case to report and track their online spending and pay the necessary dues as a result. This is an entirely different matter altogether, though it does play an important role in the overall discussion.

I asked the community how a sales tax on their online purchases would impact the frequency of their online shopping. Here are some of their responses:

Steve Woods – It’s a difficult decision for me. I buy online often for convenience and price, and do think an additional sales tax of 8-9% will still offset the price of gas and time in a store. But I have also had to consider the lack of profit to a local business in my city.

That said, many of the “local businesses” I shop from are chain stores with profits leading out of state anyway. My community and state benefit from the sales taxes only.

Having a local sales tax added to online purchases will offset some of the losses by bringing at least some sort of revenue back to my city and/or state to upkeep the roads and bridges. Even if this means the same price in or out of a brick and mortar shop, I’ve still gained the time and expense of gas.

Local merchants that create something unique have already begun the rapid shift to online sales, creating Etsy accounts and online shopping carts. If they’re making something desirable, the profits should come back to my area anyway, as potentially people from all over the world buy their goods.

Leon Carpenter – Gas costs more than taxes for most purchases — especially when Prime allows me to have free shipping. So, yes, I would pay sales tax. The only time online sales tax would give me pause is for large purchases such as TV’s etc.

Debbie Wolfe – Like several others here, I shop online for convenience & selection, somewhat for price, but not at all to avoid taxes. When I lived in California, I would also pay use tax on my online purchases.

Joe Hackman – It wouldn’t change my online purchase habits much, it’s really only a factor today on high ticket items where the tax is a significant amount.

Jen Reeves – It’s about convenience and discounts for me, not taxes.

Shane Brady – Personally, for a lot of things, the shopping experience is better online, where I can research, compare, get feedback. I still buy stuff online from companies who charge me sales tax because the whole process is nicer.

Stephen Shankland – Yes. I shop online mostly because I don’t have to drive some place, especially some place that’s closed in the middle of the night when I have time to shop.