Here’s an interesting story by Eric Torbenson from the New York Post: “The monster that ate the recovery–Why the rise of Internet shopping could destroy jobs and the economy.” [It’s alternate subheadline is “could filling your iPod destroy the economic recovery?”] The premise is “online sales mean fewer employees and fewer physical storefronts. That means falling salaries and rents, decreased construction, lower payroll taxes[, and lower] sales taxes.” Internet sales are projected to grow faster than brick-and-mortar sales, taking a toll on retail employment, those sectors of the economy that feed on retail employment, and governments that rely on sales tax revenue. The evolution towards online sales may be inevitable, but the recession’s quickening of its pace amplifies the resultant economic dislocation.
Amazon has filed a lawsuit in a New York state trial court challenging New York’s recent law requiring Internet retailers to collect and remit sales taxes on sales to New York residents. According to an article in today’s NY Times the New York law redefines the nexus–the in-state presence–required for an out-of-state retailer to be liable for collecting and remitting sales taxes by “includ[ing] any Web site based in the state that earns a referral fee for sending customers to an online retailer.” In other words those New York-based websites that link to Amazon’s goods create the 21st century equivalent to a sales force traveling the hinterlands to drum up sales. The Times article reports that Amazon is challenging the constitutionality of the law, presumably on due process and commerce clause grounds but also as a violation of the 14h Amendment’s equal protection clause. Its complaint alleges that the law is known as the “Amazon Tax” and” was carefully crafted to increase state tax revenues by forcing Amazon to collect sales and use taxes.”
The effort to collect sales taxes on Internet transactions gained momentum recently. Last week the New York legislature passed a bill that would require Internet retailers doing more than $10,000 a year in business to collect and remit taxes on sales to customers in New York. This article in the New York Times addresses the issue, noting that since 2003 New York’s state income tax form has contained Line 59, on which taxpayers are required to list unpaid sales taxes on Internet sales from non-New York retailers. In 2006 five percent of New York taxpayers included information on Line 59, with an average tax owed of $95.36. I expect that most taxpayers are unaware that they are required to pay in-state use taxes on out-of-state purchases that were untaxed at the time of purchase because, for instance, the taxpayer had the item shipped from the store to their home. The requirement to pay use taxes has been around for some time–since the 1960s in New York, via Line 56 on older tax forms–but the only enforcement I recall involved disgraced Tyco CEO Dennis Kozlowski’s evasion of sales tax on a multi-million dollar purchase of paintings. Kozlowski purchased the paintings in London and had them shipped to his home in New York via Tyco’s headquarters in sales-tax-free New Hampshire, for the purpose of avoiding New York sales tax. New York indicted Kozlowski for tax evasion but ultimately dismissed the charges. New York expects to collect about $50 million a year from the new law.