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Four More US States Line Up To Tax E-Commerce

Tuesday, February 23, 2010

Maryland, Illinois, Vermont and Virginia have followed the lead of New York, North Carolina and Rhode Island, by submitting bills which would force online retailers with locally based marketing affiliates to collect sales tax for their state, the so-called 'Amazon tax'.

The threshold amounts were in each case set at USD10,000 for cumulative gross receipts during the preceding four quarterly periods and are proceeding despite the litigation taking place in the New York courts which questions the constitutionality of such measures.

Bill (SB660) was passed through the Virginia Senate on February 16, in spite of a Department of Taxes fiscal impact statement that stated; "Given the response to similar legislation enacted in other states, it is unlikely that online retailers would comply with the provisions of the bill and begin to collect the Retail Sales and Use Tax."

The Fiscal Impact Statement went on to say that when similar legislation was enacted in Rhode Island and North Carolina, large online retailers ended their affiliate programs. "If this were to happen as a result of this bill, there would be no additional revenue from the enactment of this bill."

Similar bills passed by the senates in California and Hawaii were vetoed by their respective governors, when it became clear that the large online retailers, Amazon and Overstock, were threatening to terminate their agreements with their local affiliates.

Hawaii's Governor Linda Lingle stated that it would be premature to enact legislation similar to New York’s, noting that the New York law was still being litigated, and adding that the legislation was “not well thought out” and could have negative consequences for many smaller businesses.

Netchoice.org, which has set itself up as the arbiter of poorly drafted legislation on e-commerce, commented: "Online companies and content providers are still experimenting with new models for advertising and distribution. State laws that use Internet advertising as a proxy for an in-state sales representative will stunt the growth of new business models and distort the evolution of Internet marketing."