Update on Internet-TAX

Thought Arkansans would be interested to know what impact the "Internet Tax" our legislators passed through the Senate last week is having in other states such as Illinois. 

Illinois Governor Pat Quinn (D) signed the tax into law on Thursday.  Amazon and other online retailers wasted no time pulling out.

Call your Representatives and let them know you do not want to follow Illinois~

Here are a few stories with the details~ Pay attention Arkansas! 

From Townhall Finance~ Amazon cuts Ill. ties over sales tax collection

 "Amazon.com has made good on its threat to cut ties with Illinois affiliates because of a new law requiring the online store to collect sales taxes.

Amazon notified its Illinois partners Friday that it will stop doing business with them April 15. It calls the tax law "unconstitutional and counterproductive.

Online retailer Overstock.com said later that it also will cut ties with Illinois-based partners beginning May 1.

Gov. Pat Quinn signed legislation Thursday that requires online companies to collect sales taxes on Internet purchases if they have any affiliates based in Illinois. Affiliates are businesses that refer customers to Amazon and Overstock and receive commissions on purchases.

The sales tax always applied to Internet sales. But individuals _ not online businesses _ were responsible for paying it. Few people did.

 From Investors.com Illinois' Illogical Internet Tax

Fiscal Policy: Illinois becomes the latest state to enact a law imposing a sales tax on Internet retailers. Advertised as saving "main street" jobs, it's yet another creative way to drive them off.
Ignoring the truism that when you tax something you get less of it, Illinois Gov. Pat Quinn on Thursday signed legislation making the Land of Lincoln the latest state to enact what's dubbed the Amazon Tax. It's designed to collect state sales taxes from online companies if in-state businesses do business through websites such as Seattle-based Amazon.com.

In the past, online companies such as Amazon avoided collecting and paying state sales taxes, arguing they have no physical presence in a given state. A 1992 Supreme Court decision found that businesses had to collect sales taxes only in states in which they had a substantial physical nexus there.

Amazon has no physical presence in Illinois, but its affiliates — companies that market through Amazon — do.

Illinois now joins Hawaii, North Carolina and Rhode Island in getting around this impediment by considering affiliates as the required nexus. Amazon's in court with New York over a similar law.
According to the Tax Foundation, such taxes do not produce huge revenue streams. "Rhode Island," it says, "has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax."

Illinois has about 9,000 such affiliates, and Rebecca Madigan, director of the Performance Marketing Association, an affiliate trade group, estimates the state will lose 25% to 30% of tax revenues collected from the affiliates themselves as they lose business, cut jobs or move out of Illinois.

"We had opposed this new law because it is unconstitutional and counterproductive," Amazon said in a letter announcing it was severing ties with its Illinois affiliates. Businesses targeted by the new tax are already packing their bags to move to friendlier tax climes.

Until Quinn's action in signing what is called the Main Street Fairness Act, those Amazon or Overstock.com affiliates didn't have to collect the state sales tax as a local store selling the same product must.

Quinn says this law "will put Illinois-based businesses on a level-playing field," putting online retailers under the same tax burden as brick-and-mortar stores.

Likelier, it will simply force businesses to flee the state and leave their brick-and-mortar offices and buildings empty.

Internet Tax Passes Through Senate

Some Arkansas legislators are still evidently not convinced that Arkansans were serious in November when we sent a resounding message to stop raising taxes and begin to reign in spending.

Today the Arkansas Senate passed the "Internet Tax Bill", SB 738,  by a vote of  26-7-2. "Yes" votes would include all 20 Democrats and 6 Republicans. 

Many proponents of this bill will tell you it is not a tax increase, which technically is true, BUT the net effect is a tax increase to the consumer on all internet purchases. 

According to a letter sent by Grover Norquist, President of Americans for Tax Reform, to Members of the Arkansas State Senate this bill could put Arkansas at risk of legal action, circumvents the law and negatively impacts in-state business, just what we need given the current economic state. 

I am wondering why the Attorney General has not stepped in to speak against this particular bill given his consistent concern over the state being sued for other bills. Why just yesterday his office spoke against SB709, which failed to make it through committee, sighting that it might place the state in a situation of litigation. 

SB709 would have given transparency to Arkansans when dealing with the implementation of Obamacare here in Arkansas. Read more about yesterday's shenanigans here. 

Here is the entire letter sent to Arkansas Senators by Grover Norquist: 

I write in strong opposition to establishing an affiliate nexus Internet tax in Arkansas under Senate Bill 738. The bill’s intent is to require out-of-state retailers to collect and remit sales tax on products purchased online by residents. However, the realistic outcome of this legislation will do more to negatively impact in-state businesses than it will to level the playing field.

Current jurisprudence, under the Supreme Court’s ruling in Quill v. North Dakota, requires a business to have a physical presence in a state in order for the state to compel that business to collect sales taxes. SB 738 attempts to circumvent this law and require out-of-state retailers to collect tax by presuming a company has a presence if 1) business is solicited through a third-party affiliate in the state, or 2) it is part of a “controlled group of corporations” with another one based the state.

This bill flies in the face of the Supreme Court’s ruling and could bring a lawsuit to Arkansas at a time when the same tax is already undergoing legal challenge in New York.

Senate Bill 738 could inadvertently punish Arkansas advertisers and other businesses. This tax expands the definition of doing business to include an out-of-state retailer that has an affiliate in Arkansas. If having an affiliate in Arkansas creates a nexus for out-of-state retailers, these retailers will likely terminate advertising or other agreements with Arkansas businesses. This is precisely what has happened when similar legislation passed in other states, such as Rhode Island and North Carolina.

If online retailers sever nexus to avoid the tax change, the state will not raise revenue. In fact, should this bill pass and online retailers sever contracts, 1,800 advertising affiliates in Arkansas will lose business and the state will lose the $9 million in state income tax that these affiliates pay.

There are two potential outcomes. If SB 738 is scored assuming no online retailer severs their in-state ties, the bill will be a tax increase that raises revenue and Americans for Tax Reform considers it a violation of the Taxpayer Protection Pledge. If SB 738 is scored to not raise revenue, it assumes out-of-state retailers will sever their ties with Arkansas businesses, causing them and the state to lose revenue without leveling the playing field between brick-and-mortar and online retailers. This is no contradiction – it simply depends on how economic actors react to the tax change. Regardless, both of these outcomes make for bad tax policy, and the more likely outcome makes the intent of this legislation – leveling the playing field – irrelevant.

For these reasons, the affiliate nexus Internet tax has been rightly rejected in at least 14 other states. We urge you to reject Senate Bill 738. If you have any questions, please contact Kelly William Cobb at (202) 785-0266.

 Onward,

Grover Norquist
President, Americans for Tax Reform