We Love Our Taxes! But What About Internet Taxes?
I have yet to meet anyone who has not complained about his or her taxes. But when it really comes down to it, as a society, I think that on some level we like paying taxes and believe that they are necessary for our collective well being.
Harry Reid Was Right
Take, for instance, the overwhelming vote in Massachusetts this year that defeated the ballot initiative to end the state income tax. The measure would have cut the 5.3% tax rate in half in January, and then eliminate it altogether in January 2010. The measure was defeated by approximately a 2-1 margin.
There was quite a bit of buzz last spring over an interview with Senate Majority Leader Harry Reid (D) who stated that our taxes are “voluntary.” Given the example in Massachusetts, Mr. Reid is right to some degree because as we’ve seen, given the choice, people will choose to be taxed. This is further reflected in the national vote, in which the party that will increase government spending by over $200 billion was the clear victor (see the National Taxpayer’s Union analysis). The “anti-tax” or “reduce tax” types of candidates such as Ron Paul and Bob Barr were basically laughed off the political platform as being extreme.
Internet Taxes
According to TechCrunch, president elect Obama wants to keep the Internet tax free, which I applaud. On the other hand, the recent sales tax law in New York could change the Internet taxing climate.
Generally, an online business — or mail order company, for that matter — does not need to charge sales taxes on its products if it does not have an office in a particular state. For instance, if an online retailer has only one office and that office is located in Arizona, and a customer from Wyoming purchases products from the retailer, no Wyoming sales tax is charged. However, the state of New York enacted legislation that requires “Amazon and other online retailers (that lack a physical presence in the state) to collect sales tax on New Yorkers’ purchases.” (See the CNET article, Tax-free Internet Shopping Days Could be Numbered)
Under the New York law, online vendors (or mail order vendors) that are located outside of the state need to register with the state as a vendor and their affiliates within the state also have to register and obtain a “Certificate of Authority” for New York state sales tax purposes (read the legislative summary here). This has affected large retailers such as Amazon who have affiliates (i.e., website owners who participate in the Amazon affiliate program) located in New York state. Amazon has sued the state over this issue, and Overstock severed its ties with affliates in New York and joined in the lawsuit.
Meanwhile, the huge digital download company, Clickbank, adjusted its affiliate program to comply with the New York state sales tax law.
Small Business Considerations re: Internet Taxation
The bottom line is that despite Obama’s stance against Internet taxation, I believe we are going to see more states jump on the tax bandwagon if New York prevails in the Amazon lawsuit. As a small business owner, offering an affiliate program is a tremendous tool to boost your sales. However, it is a good idea to have a lawyer on board who can help you with Internet sales tax issues. Alternatively, offering your affiliate program through large, established affiliate management services instead of independently managing your affiliate program would be a good idea, since these services have legal teams in place and have the technological resources to address state sales tax issues.
As a small business owner, if you are looking for a lawyer to help you out with your tax questions or other matters, LegalMatch offers a free “match up” service where you can submit your questions and lawyers will respond to let you know their rates, their experience and so forth. You are not obligated to hire any of the attorneys who respond; however, the process will probably help you make an informed decision about your next steps.
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