Shopping Search Engines and the “Amazon Tax”
A Taxing Proposition: The Negative Implications of New York State’s “Amazon Tax”
By Rory Cumming, CEO of ShopWiki.com
New York State’s collection of sales tax from online merchants based outside its borders – the so-called “Amazon Tax” – may at first seem a judicious means of raising tax revenue in challenging economic times. But even a cursory evaluation of its plan reveals significant negative ramifications for the State, and equally detrimental downsides to both its corporate and consumer citizens.
The State, which has targeted companies that leverage affiliate relationships as a “nexus establishing a local presence,” contends its actions will add an estimated $47 million (see article by New York Times reporter, Saul Hansell) to its annual coffers. But even if the law somehow survives the myriad costly legal challenges that have already been filed by Web giants like Amazon and Overstock, the yearly revenue New York collects will likely not offset the dollars affiliate marketers and other affected companies kick up in corporate and individual income tax.
The shopping search engine I manage, ShopWiki.com, is a perfect example. ShopWiki.com depends heavily on affiliate relationships and provides valuable marketing services to retailers who genuinely want the qualified and productive demographic leads we send. We’ve enjoyed a fruitful relationship with merchants across the country since hanging out our shingle some three years ago, and we’ve invested heavily in forging and nurturing these mutually beneficial partnerships.
But now, faced with a litany of compliance issues, some of our long-time partners have already begun to turn their backs on us, and more will likely follow (see article in Business Week). Frankly, we don’t blame them – it makes solid economic sense. However these severed ties not only hurt us by making it harder to compete in the shopping search space, it limits the choices consumers have on where and how they buy merchandise.
ShopWiki.com, despite its exponential growth, remains agile enough to depart for more friendly harbors like New Jersey should the situation warrant. And new companies considering incorporating and operating in the Empire State will almost undoubtedly rethink the idea. The $47 million, a mere 0.039% blip in the forecasted $119.9 billion in receipts for New York’s 2008-09 budget, pales in comparison to the loss of long-term income tax – not to mention good will – from the companies and employees that pay state and local taxes with the revenue generated from affiliate relationships.
ShopWiki.com’s co-founder, former DoubleClick CEO, Kevin P. Ryan, one of the entrepreneurs most committed to doing business in New York, noted in a recent industry meet-up covered by C|net, that New York’s tech culture is flourishing, and New York City alone has produced about $35 billion in tech assets in the past decade. And Crain’s New York Business technology reporter, Amanda Fung, shared his optimistic view noting that New York City leads the nation in high-tech jobs. With all this in mind, why Albany would do anything to discourage such a burgeoning industry is a mystery.
Ultimately, I’m opposed to sales tax on Internet purchases – whether in New York or any other state. The online economy is thriving and more dollars are being earmarked towards e-commerce because of the multitude of efficiencies it offers. But if, in their infinite wisdom, New York’s elected officials see fit to mess with something that ain’t broke, at least let them devise a plan that doesn’t discriminate against companies because of the state in which they choose to operate. We remain steadfast in our commitment to doing business in New York and hope it repays our loyalty with appropriate consideration for our present and future issues, plans and challenges.
ShopWiki is part of the AlleyCorp network of affiliated Internet companies.
September 7th, 2008 at 9:05 pm
Tax-free shopping is a privilege enjoyed by all residents of United States jurisdictions without sales taxes, but through so-called “remote” sales — including sales to visiting out-of-state residents, sales via catalog, and sales via Internet — customers in a sales taxed jurisdiction may also make purchases in sales tax-free jurisdictions, notwithstanding the legal requirement to pay the equivalent (compensatory) use tax in their home state. Delaware is free of all sales taxes, including homes and cars (providing you can prove residency). Tax Free ShoppingFor example, merchants in tax-free New Hampshire regularly advertise to residents of adjacent Massachusetts, Vermont and Maine the benefits of purchasing goods without sales tax, ignoring the fact that there is no general exemption from the use taxes when the goods are taken back home. Many purchasers are unaware of the obligation to pay the tax, or file the necessary return, or of the fact that it is not the duty of a merchant to collect it from them and pay it indirectly. However, it is the purchaser’s obligation to pay it directly to the state, often in connection with filing their annual income tax return.