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Internet Taxes
Amazon Cuts N.C. Affiliates
The latest battle over Internet taxation involved North Carolina and
Amazon, the Seattle-based online retailer.
In 1996, Amazon initiated the Amazon with North Carolina-based affiliates to
Associates program by which Web site begin collecting sales taxes.
operators, or “affiliates,” earn money from Since these Web site operators, often
product sales by posting ads that funnel small businesses, are based in North
customers to the parent site. Affiliates can Carolina, the law defines Web site owners
earn anywhere from 4 percent to 15 percent who run ads as a form of physical presence
of a product’s price through this for Amazon and others, as if they had a
referral program. warehouse or storefront. The “sufficient
Estimated Lost Sales Tax Revenue In response to budget woes, physical presence” clause would conse-
From E-Commerce, 2007-2012
legislators in North Carolina quently mandate Amazon to collect taxes on
1,200
proposed adding a sales tax behalf of the state.
1,000 to out-of-state online transac- Not only has the state lost the potential
tions of businesses with a revenue from these Amazon sales, but a sig-
800
$MILLIONS
physical presence in the state. nificant share of the residents who relied on
600 However, the state lost its the affiliate program for business will have
400
opportunity to generate revenue less income to report.
when major online retailers, Rich Owings, owner of a Web site that
200 including Amazon, preemp- reviews global positioning systems and
0 tively canceled agreements with refers customers to Amazon and other
NC VA MD SC WV DC North Carolina businesses in online retailers, realized he would lose 40
SOURCE: Donald Bruce, William F. Fox, LeAnn Luna, late June, a month before the percent of his income the day Amazon ter-
University of Tennessee
tax was signed into law. In an minated its program. The outlook for his
e-mail to affiliates, Amazon business looks grim, and he said that his
announced it would discontinue its popular options are to sell the business, move out of
Amazon Associates referral program if the state, or let it go completely.
state’s “unconstitutional tax collection The Amazon issue foreshadows the
scheme” passed. larger problem of a tax system coping with
North Carolina had previously required rapidly evolving technologies, according to
consumers to pay taxes on out-of-state pur- Bill Fox, director of the Center of Business
chases when they file their income taxes as a and Economic Research at the University of
kind of “good faith” payment. But with most Tennessee. One potential solution involves
consumers either unaware of this tax or changing the federal sales structure, an ini-
unwilling to pay, the state has lost approxi- tiative known as the Streamlined Sales Tax
mately $145 million in tax revenue for 2008 Project. It would create a uniform tax rate
alone. A legislative fiscal analysis projects and define what constitutes a “physical
up to an additional $13.2 million in fiscal presence” for online retailers.
year 2009-2010 on electronic commerce Though the consequences for state
sales. tax revenues are uncertain, Fox says, this
In 1992, the Supreme Court ruled that an won’t be the last time states will spar with
out-of-state business must collect sales taxes online retailers over tax issues. Rhode
only if a sufficient physical presence is Island, Hawaii, and New York have already
established. Determined to reduce the Tar passed such legislation, and more states may
Heel State’s $6.4 billion deficit, state legisla- follow suit.
tors plan to force out-of-state businesses — CHRISTINA ZAJICEK
Resources (DNR) in July to show how much they’d the Virginia Marine Resources Commission. Bids
be willing to pay to permanently give up the licenses. will be accepted or rejected by December 1. Once the
The state offer brought 494 bids among the approximately state buys a license, it’s permanently retired.
2,000 licenses targeted. The DNR countered with a bid of Virginia and Maryland in 2008 reduced allowable female
$2,260 per license to all commercial license holders. catch by 34 percent, and the 2009 Winter Blue Crab Dredge
Virginia offered to buy licenses from both full-time water- Survey reported increasing numbers of year-old females.
men who averaged more than 100 days with pots (or 60 days in — B E T T Y J OYCE NASH