Policy Documents

Research & Commentary: Amazon Taxes

Elizabeth Henderson –
December 22, 2011

Many state legislatures are pursuing legislation to force out-of-state online and catalog retailers to collect and remit sales taxes on purchases made by residents in the state.

These so-called “Amazon taxes” are in direct conflict with the Supreme Court’s 1992 decision in Quill Corp. v. North Dakota. Under Quill, companies are required to collect sales tax only where they maintain a “bricks and mortar” facility. Supporters of the Amazon tax say contracted, third-party affiliates that earn revenue from linking to these major retailers constitute a physical, in-state presence.

Amazon.com has responded by severing ties with affiliates in Alabama, Colorado, Connecticut, Illinois, North Carolina, and Rhode Island. These affiliates, including many small businesses, employ thousands of workers who pay income and property taxes. Amazon canceled 9,000 affiliates in Illinois alone after Gov. Pat Quinn (D) signed an Amazon tax into law in March 2011. Besides losing $18 million in affiliate tax revenues, Illinois will see even more businesses flock to lower-tax states such as Indiana. In Rhode Island, legislators have moved to repeal the state’s Amazon tax after it led to net losses in overall revenue and income taxes.

Instead of “leveling the playing field,” as proponents argue, Amazon taxes punish online retailers by requiring compliance with each of the nation’s 8,000 sales tax bases—a nearly impossible task for small businesses with limited resources. Amazon taxes stifle economic growth, reduce tax competition among the states, and raise taxes on consumers.

State governments should implement pro-growth tax policies instead of unduly burdening consumers and stunting economic activity by imposing Amazon taxes.

The following documents provide additional insight and information on Amazon taxes:

Research & Commentary: Internet Sales Taxes
http://heartland.org/policy-documents/research-commentary-internet-sales-taxes-0
This Research & Commentary on Internet sales taxes explains how taxing the Internet hurts business and fails to bring in the revenues proponents hope for. “The new tax-remittance burden, however, would fall on online retailers. It would add to their costs and could demolish one of the last remaining redoubts of vibrant economic enterprise—the last thing any state needs during a deep recession.”

Tax Foundation Special Report: “Amazon Tax” Laws Signal Business Unfriendliness and Will Worsen Short-Term Budget Problems
http://www.taxfoundation.org/publications/show/25949.html
The Tax Foundation finds Amazon taxes are unconstitutional, harm economic growth, punish online retailers, and will likely lead to drops in revenue.

Quill Corp. v. North Dakota, 504 US 298 - Supreme Court 1992
http://www.law.cornell.edu/supct/html/91-0194.ZO.html
In this important court case, the United States Supreme Court reached a unanimous decision that retailers must collect sales taxes only in states where they maintain a physical, “bricks and mortar” presence.

Amazon Sales Tax: The Battle, State by State
http://www.thestreet.com/story/11052898/amazon-sales-tax-the-battle-state-by-state.html
The Street provides a comprehensive, state-by-state account of the status of Amazon tax initiatives across the nation.

Amazon Tax Passes, Jobs Flee
http://www.illinoispolicy.org/blog/blog.asp?ArticleSource=3947
The Illinois Policy Institute discloses its notice of contract termination from Amazon. The letter was sent to all Illinois affiliates after Gov. Pat Quinn signed an Amazon tax into law in March 2011.

New ‘Amazon Taxes’ Hit State Budgets Hard
http://heartland.org/policy-documents/new-amazon-taxes-hit-state-budgets-hard
This policy document from The Heartland Institute examines how Amazon taxes are backfiring on state budgets.

Proposed California Amazon Tax Grants One-Year Exemption for Internet Retailers
http://news.heartland.org/newspaper-article/2011/09/14/proposed-california-amazon-tax-grants-one-year-exemption-internet-retai
Budget & Tax News reports on Amazon’s recent dealings with the state of California, which culminated in a compromise mandating sales tax collection in the state after one year.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit the Budget & Tax News Web site at http://news.heartland.org/fiscal, The Heartland Institute’s Web site at www.heartland.org, or PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or the Heartland Web site, contact Government Relations Director John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.