States across the nation are passing new legislation creating an internet tax to capture additional revenue to help states deal with the economic downturn. These new laws would force out-of-state companies to collect sales tax if they have marketing affiliates in that state. These companies are currently protesting the responsibility of financing cash-strapped states.
E-commerce companies do “not want to shoulder the unconstitutional burden of collection in states where we lack a physical presence,” said Patty Smith, a spokeswoman for Seattle-based Amazon. Several online companies are dropping affiliates in an effort to avoid collecting sales tax. Overstock.com Inc. recently informed its marketing affiliates in California, Hawaii, North Carolina and Rhode Island, that it is ending its business with them.
Many states are unyielding in their efforts to generate tax revenue from the e-commerce companies. In fact, if these states manage to manipulate the sales tax laws, they could force online businesses to collect tax in 20 states. North Carolina even has a backup plan to assure these e-commerce companies are taxed. The state’s revenue secretary plans to interpret existing laws to require companies that have marketing affiliates to collect sales taxes if its current efforts to tax online sales fall through.
As companies flee states forcing the collection of sales tax, they must look to alternative locations for new affiliates. Currently, Oregon remains one of only five states without sales tax. Therefore, in time, Oregon could hit jackpot as companies seek new locations to rebuild their businesses.