Amazon Tax Rears its Ugly Head in California Once Again


Posted by Patrick M. Gleason on Wednesday, January 19th, 2011, 12:54 PM PERMALINK

The budget introduced by Gov. Jerry Brown last week has been a hot topic of discussion in the Golden State and nationally. And while Brown is calling for $12 billion in higher annual income, sales, and car taxes, legislative Democrats are now jumping into the fray and proposing their own ill-advised tax hikes.

Among the most misguided of proposals coming out of the Democrat caucus is Assemblywoman Nancy Skinner’s Amazon tax legislation, reintroduced just yesterday, that would illegally require out-of-state businesses to collect California’s highest-in-the-nation sales tax. Make no mistake, this new tax, commonly referred to as the “Amazon tax,” is a guaranteed job killer that wouldn’t even make a dent in California’s budget deficit.

Perennial attempts to pass this job-killing tax on e-commerce have been rightfully rejected in California and elsewhere. Aside from failing to address the real problem – overspending – and adding to the state’s 12% unemployment rate, an unconstitutional Amazon tax wouldn’t do squat to close the state deficit, estimated at $26.4 billion over the next 18 months.

Assemblywoman Skinner projects that an online sales tax will generate an additional $300 million annually for the state. While that projection is without basis in reality for reasons that I will get into in a moment, let’s assume Rep. Skinner’s faulty revenue projections and look at how much of a dent it would make on the state’s deficit. At $300 million in annual collections, an Amazon tax would chip a meager 1.1% off the state’s overspending-generated deficit. Yet the reality is that the state wouldn’t even realize that paltry sum. What’s that? You want a chart you say?

 

The fact is that Rep. Skinner’s proposal would raise no additional revenue for the state. In fact, as the chart above illustrates, the state would actually lose revenue, as has been evidenced by the handful of states that have enacted Amazon taxes.

Three states have enacted an Amazon tax in the past two years – Rhode Island, North Carolina, and Colorado – and all three have generated zero additional revenue from it.

Rhode Island General Treasurer Frank T. Caprio had this to say about his state’s Amazon tax:

“the affiliate tax has hurt Rhode Island businesses and stifled their growth, as they’ve been shut out of some of the world’s largest marketplaces, and [it] should be repealed immediately.”

As ATR has repeatedly explained to state legislators, Amazon taxes hurt small ad businesses and do nothing to fill state coffers. Rather, it has been demonstrated time and again that retailers will simply terminate contracts with advertisers in states that stupidly enact an Amazon tax to avoid creating a “nexus” and, therefore, being forced to collect this unconstitutional tax.

In 2009, 25,000 individuals and small businesses in California earned $1.6 billion from online advertising, paying $124 million in state income tax (plus employment tax, business tax, property tax, sales tax, etc). That is a revenue stream that will dry up if Skinner’s legislation passes.

It gets worse. Not only is the tax harmful to employers, the state of California could face a burdensome and costly lawsuit if Skinner’s legislation were to pass.

Not every state is a total failure; some just serve as bad examples. California legislators would be wise to learn from the bad examples set by lawmakers in RI, NC, and CO, rather than choose to serve as one themselves.

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