NY Department of Taxation and Finance to Amazon:

You're fucked! The linked document is a very interesting development in the long battle between states and online retailers over whether or not online retailers must collect sales or use tax on items purchased by state residents. Well, the battle may be over, because New York state just dropped an atomic bomb. Long and short, ithe New York Department of Taxation and Finance issued a memorandum that essentially says that online retailers that have no other presence in New York could, nevertheless, be responsible for collecting and remitting sales taxes on all goods and services delivered in the state if they have "representatives" located in New York who solicit sales for the retailer (i.e., link to a retailer's site) in exchange for a commission or referral fee. If so, then the online retailer must collect sales taxes on all sales of goods and services to New York, not just those that were generated through the representatives' links to the retailer. Got that? Now think about the Amazon affiliate program. Exactly.

So after rereading the memo for the fourth time, I needed confirmation that it was, in fact, a big fucking deal. Could there possibly be a huge tax geek out there who would want to decipher this memorandum? Oh yes, yes there was.

If you clicked the link and read Maud's post, you will see at the end the bit that makes the memo particularly dangerous, namely that it requires online retailers to register as New York State sales tax vendors by December 7, 2007, if they want to avoid an assessment of (past) tax due, penalties and interest. That is, sign up to register as a vendor by December 7th, or wait for the Department of Taxation and Finance to knock on your door. Oh, and once you sigh up as a vendor, you are required to collect and remit sales tax on every fucking sale in the state....till the end of time. That sound you hear? Just Jeff Bezos sobbing.

Comments

[Morse]

I was an Amazon affiliate when I ran Media Needle, but that's been inactive so long, that it couldn't possibly matter. Still, I'd better cancel my affiliate status to make sure.

I get lost in this tax shit. Thanks for explaining it.

[gmb]

Morse: You are fine, Amazon isn't. You see, Amazon is the seller and has to collect because NY is saying that the use of representatives means that Amazon has agents in the state. You are fine. Don't worry. Note that NY didn't mention Amazon by name, but it seemed clear to me that they are most at risk. GMB

[Morse]

Not that I ever made any fucking money from it anyway. Thanks, G.

[gmb]

No worries, Morse. I didn't want you to be concerned. Amazon, on the other hand, should be very very concerned. Whatever the outcome (and I think NY has a very good argument), I would be concerned about Amazon's share price. Thing is, a lot of other states will want to follow NY once they are aware that NY has taken the gloves off. GMB

[Ken]

Well, basically all Amazon would have to do is cancel all of their affiliates in the state of New York. Problem solved. It's going to be cheaper that way then to go through the whole painful tax laws.

[gmb]

Um Ken, can Amazon cancel their affiliates retroactively? Don't think so. Read the memorandum carefully. Assuming, and I do, that Amazon has some splainin to do to the NY Dept. of Taxation and Finance, they have two options: 1) register and begin collecting tax on or before December 7th or 2) incur the wrath of the department and brace themselves for an audit to the beginning of time (which I have been told is 1996). You can't unscramble an egg. GMB

[Murf]

This is ridiculous, oh, and taxation without representation (what say do businesses operating outside of NY get in the tax policies now being forced on them by NY?).

Apparently NY has decided that companies that aren't directly in its jurisdiction are in its jurisdiction if customers or resellers or affiliates are. By this general logic and over-reach, I hope everyone in NY has also filed their income tax liability statement in Kazhakistan and everywhere else on the whole six degrees concept.

I am not in favor of taxes period, but this is a fair argument to having a national sales tax or VAT, so long as it was to REPLACE and not supplement an income tax (argument of tax fairness). The problem with all of this is that right now, as it all stands, NY, and really any state that follows its lead, is just going to strongarm private enterprises into being enforcers of their taxation efforts. That sounds a lot like a form of involuntary servitude to me.

There are all kinds of legal and moral arguments that can (and should) be made against this, and I won't presume to try them all (it's after midnight here in London, UK as I type this). Let me just say that this is a logistic nightmare that, if carried to its logical conclusion by everybody, could lead to the death of e-commerce and companies like eBay, Amazon, etc. as they try to comply with tax law and tracking in every possible contingency. What about municipal taxes on sales? Should every possible e-commerce site moniter and enforce every variation in sales tax, state by state, county by county, and city by city?

One reason the Internet has thrived, as the USA once did way back upon a time, has been the generally minimal (or zero) taxation. Now that the cash cow is grown up, the various governments are getting their butcher knives out to carve a piece for themselves. Bear in mind what this does to the cash cow though (to stretch analogies).

Imagine someone running an Ebay shop trying to register and collect and remit the correct sales taxes (and the enormous costs it would impose upon him/her).

What about making a purchase to or from a low tax state and drop shipping? What if, like me, you actually live abroad and only have items shipped to a US address as a matter of shipping savings before a friend sends it all onward monthly in a combined shipment? Ostensibly I get to pay an import duty or VAT, should I also pay various sales taxes or try to play the incredibly complicated (and privacy infringing) game of getting taxes and vat paid reduced based on previous taxation (in accordance with various treaties)?

The simplest thing to do would be zero taxes beyond those already collected. NY already taxes the living hell out of, well everything from income to property to sales to sin. They don't need to strongarm Internet merchants for a cut. In this way they are emulating the mafia (government and organized crime have much more in common than you would automatically guess) in using their power to force compliance on the theory that they can just make life difficult or expensive for anyone in business legitimately. This is an issue because, for all practical purposes, the government has unlimited resources to hound someone via enforcement and the courts, but private enterprises don't. It is usually just cheaper to comply or cough up than fight, and on that basis alone, private enterprise and individuals are forced to capitulate.

NY is demonstrating again that government not only reduces the competitiveness and viability of US businesses, but that its rapine policies really know no boundaries as it demands a piece of every pie.

For students of history and taxation (I am one), it is clear why, throughout history, civilizations flounder or prosper in direct proportion to the level of acceptable taxation and government growth. The US in general (and UK and much of Europe), and states like NY in particular, destroy so much actual and potential wealth in their high tax and grab policies. This is one reason why our actual economic growth rates are anemic. Government siezes much of the productivity boost of technology, crippling the potential compound gains that could be realized (and are being realized in places like China).

Oh, now China by the way, "communist" China has economic growth rates of 9-12% per year, which is likely related to the fact that 10% of the economy is government spending. "Capitalist" America on the other hand has growth rates of about 4% (or less, especially if you realize how we cook the books) and government spending at various levels accounts for about 40% of the economy. Proportionately, we are about four times more communistic than the Chinese, and are paying that price in lost growth (and lost freedom) and wealth.

NY is just one of the worst examples of the moral rot inherent in America and its love of big government. No nation can honestly say it values freedom and have 40% (or anywhere near that figure) of the economy commanded by government!

[gmb]

Murf: You forgot to take your aderall, dear.