E-Fairness?

In the past, Amazon.com and affiliates have enjoyed the benefits of operating tax-free—but this may no longer be the case. In the last several weeks, several state legislatures have adopted laws requiring online businesses to charge consumers state tax on products sold. This act is intended to level the playing field between physical businesses and online businesses.

The legislation has been recently passed in Arkansas, Rhode Island and North Carolina. Illinois was the fourth state to adopt the law and it is currently being debated in Vermont and California.

An March 10 article in BusinessWeek explains:

The bill would require out-of-state online retailers to collect Arkansas sales taxes if their annual sales in the state exceed $10,000. The measure would apply to retailers that have online affiliates in Arkansas, who directly or indirectly refer customers for a commission or some other consideration.

(online affiliates are blogs or websites that advertise an online business and get paid when people click on the ads)

As it currently is, physical stores (even ones that also sell items online) are required to charge taxes, but online-only businesses use a loophole to avoid collecting taxes for the state—resulting in a price difference that favors online retailers.

ABC News reported on March 11 that supporters of the bill claim that “being able to avoid charging the sales tax also gives online retailers an unfair competitive edge over the traditional businesses that keep…downtowns vibrant.”

This law is being called the “E-Fairness Act” because it will make it fair between small local businesses and online businesses in terms of tax they have to collect for the state. Stephen Di Benedetto’s article in The Chicago Sun Times on March 9 explains it’s instrumental in protecting and creating jobs. The Chicago Sun also reported that “The Illinois Department of Revenue estimates the tax could generate as much as $170 million annually for the state.”

Amazon.com affiliates are one of the largest groups affected by this legislation—and Amazon isn’t happy about it. On March 11, The Seattle Times reported about the legislation stated that “Amazon called the law unconstitutional and counterproductive.” The article continues to explainthat a 1992 Supreme Court decision currently prevents a state from “requiring Internet retailers to charge sales tax on its behalf unless they have a physical presence there.”

In response to the law passed in Illinois this week, Amazon actually is planning to end work with Illinois affiliates by April 15, it has already cut ties in Rhode Island and North Carolina and threatens to do so in other states that adopt the law.

This legislation, as well as Amazon’s actions, will affect the 9,000 online affiliates in Illinois alone. Many of these affiliates will lose money because of the law—or move to another state. There is a possibility that the Amazon.com affiliates may began working with other companies like Sears, Wal-Mart, or Barnes & Noble.

It’s yet to see how it may affect online businesses in these states in the long term, and how it will affect how people conduct online business in the future.