Unintended consequences of online tax headed to Louisiana
BATON ROUGE, La. – Online merchants are under a cloud of increased taxation, as Louisiana leaders seek to expand to their taxing authority over the World Wide Web.
HB 641 – better known as the Amazon tax – is at its third reading in the House and would reclassify out-of-state companies as in-state if they receive commissioned referrals from in-state affiliates. Affiliates are partner sites that earn commissions by advertising or linking to an online retailer’s products, sending website traffic that way.
According to a 1992 Supreme Court ruling, a state can only compel companies to collect taxes if they have a physical presence in the state. The affiliates, however, may physically tie out-of-state companies like Amazon and Overstock.com to Louisiana.
HB 641’s objective is to open new revenue streams, close the budget deficit, and create a level playing field between brick-and-mortar and online retailers.
“A lot of people try not to [pay taxes], but it’s up to the state to make sure that there’s tax fairness,” says Texas Comptroller Susan Combs. And Betty Yee, a member of California’s Board of Equalization, claims “a groundswell of activity by other states [suggests] that the time is right.”
But similar bills have been adopted in New York, Texas, Rhode Island, and Illinois with little to no additional revenue.
For instance, Paul Dion, Rhode Island’s head of the revenue analysis office, claimed in December 2009 that the six-month old law had generated no revenue. Additionally, when Texas enacted their Amazon tax, the retail giant closed its Dallas distribution center as a result of the state’s “unfavorable regulatory climate.”
A report by the Tax Foundation released this week affirms that the significant expansion in state taxing power exceeds what is constitutionally permissible. States are using “the weak link” of an out-of-state retailer’s relationship with an in-state referrer to claim taxing authority.