Three Cheers for Amazon

States want to raid Amazon for sales tax money.  Amazon refuses.  Thank heaven.

In a longstanding conflict over the rules of taxing Internet sales, Amazon is doing what I wish more companies would do–just saying no.  The 1992 Quill v. North Dakota case ruled that businesses were under no obligation to pay sales tax unless they had a “physical presence” in the state in question.  The court also ruled that Congress could change the rules if they saw fit.  So far, they have not.

The issue between North Carolina (and three other states) and Amazon is whether affiliates (Disclosure: I am an Amazon affiliate.) constitute a presence that can be construed as “physical.”  If that were ruled so, any online retailer selling anything through affiliates would have to comply with literally thousands of state and local tax jurisdictions.  Amazon says it is not worth it and canceled the affiliate program in the offending states.  The states were not happy.

As for Texas, they claim that a distribution center constitutes a physical presence even though it is actually a separate company headquartered in KY.  Amazon is closing that center now, citing regulatory burden.  Texas is not happy.

States, here is your first clue.  You have to figure out the rest.  Eventually, some state is going to figure out that it benefits far more from the jobs and income generation of unmolested businesses than it does from confiscating tax money.  When it does, watch your businesses, tax revenues, and talented people leave like rats from a sinking ship.

That is unless the Democrats manage to change the law.  I hope they try it so voters can “just say no” too.

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About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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