First, governments consistently think of the economy as a static model. So you add up how many online sales you have, add in a percentage tax, and expect to make that money.
Second, Amazon pulling out or not is simply a short-term obstacle. The long term strategy is to put a stake in the ground, then continue to lobby and work at the national level. This sets precedent, even if it doesn't work.
Third, there's a lot of ignorance. You don't have to pass an economics test to become a legislator. I think sometimes in any group that deals with another group there's an "us versus them" mentality that takes over. In some folks' mind, if you're making money, they should get a share of it to spread around. Trying to adapt and configure your business model to optimize -- or simply just to survive -- is a sign of selfish, unethical behavior. Both sides of tax debates engage in a lot of emotional over the top rhetoric. It's easy to lose track of priorities and principles.
I find it very difficult to underscore this point without going on a rant -- perhaps because I find it so bad.
Let's say I'm living in IL and making 10K a month with Amazon sales. This is all because of a lot of hard work putting bits on a server somewhere in Austin or something. People come from all over the world to consume content and buy things.
Aside from the legal discussion, in practical terms what part of this equation involves the state of Illinois? I don't mean to be facile, but looks to me like the only reason they're coming for the money is because they can. In any other scenario we'd call this a shakedown. But because politicians do it we call it policy. Weird.
I'm not by any means arguing for no government, just pointing out that most times when I pay a tax there's something concrete and direct in return. If I pay property taxes, it goes to the local school. If I pay a road toll, it goes for road maintenance. If I buy a fishing license, I pay for game inspectors. This payment and feedback loop allows me to be able to judge if a tax is working or not -- and form some kind of opinion about what rates might be best. Here I'm just paying the state because they have the power to hurt me if I don't pay them. Seems to me once you reach a certain point in decoupling taxes from benefits, there's no rational basis to have any kind of compromise any more. Instead you get these hugely polarized debates. This is not a good system for people to live in.
>Aside from the legal discussion, in practical terms what part of this equation involves the state of Illinois?
In practical terms, the argument goes that you benefit from the safety and health services that are (at least in part) provided by the state during the hours you work, marketing for Amazon. By extension, Amazon is also benefiting from these services provided (at least in part) by the state, which can be proven by identifying a single payment made from Amazon to an affiliate that is a resident of IL.
Legally, this could be grounds for one to argue that, by providing marketing services for Amazon while working in IL, nexus has been created.
I would assume that some have taken this as advocating on behalf of states that impose sales tax on companies due to the residency of their affiliates. I carefully worded my comment so that this was not the case. On the other hand, if you feel I'm wrong about the position that these states have taken, please correct me...
UPDATED: My position on tax policy is not germane to Daniel's question and based on the rest of this post, would just be redundant to include. When a thread strongly reflects one side of an issue, it's much less dull to try and articulate the counter-point of view... wish more people would try this.
... imposes the collection of taxes from consumers on sales
by online retailers – including but not limited to those
referred by Connecticut-based affiliates like you – even if
those retailers have no physical presence in the state.
Of course, they'd also tax Mr. Amazon-Affiliate's affiliate income as well. That smells like double taxation.
Also, I think your comment suggesting that "If you don't like it, vote in different representatives," is rude. Obviously, Mr. Markham is aware of his Democratic rights and duties. He very well might vote against this sort of legislation, and he doesn't deserve to hear derisive comments when voicing his disapproval.
edit: formatted the quote for easier reading
CT-based affiliates may be driving traffic from outside CT, and CT-based purchases -- the thing being taxed -- might have been driven by an affiliate in Iceland.
Terminating _sales_ to Connecticut would amount to a refusal to pay the tax. Instead Amazon has chosen to raze the profits of a minority of CT constituents. They must be hoping that the ousted affiliates will march on New Haven.
(If I were a successful affiliate, though, I'd just make an out-of-state LLC and pass income through.)
While I'm sure part of the reason they don't want to charge tax is that no tax makes Amazon cheaper, I bet a bigger portion is the headache of trying to manage every single municipalities convoluted sales tax rules. I know in my city (in Utah), there are dozens of rules for types of goods that determine different rates. Imagine doing that on a nationwide scale.
It's not like Amazon is going to pull out of the state.
DanielBMarkham is not making a case that IL isn't entitled to tax his income from the Amazon affiliate program. It is taken for granted that they will tax the additional income, as they have been doing since before this new budget/law. What they are attempting to do is tax more than just income generated by affiliates living in the state, which is where the argument that they are not contributing to the flow of business which would warrant that.
Regarding the static model, it's not so much that it's a static model as that for the overwhelming majority of online purchases, it's displacing a local purchase. It's actually a more capitalist economy from a certain point of view to make online and local purchasing compete on the same ground, especially when the market distortion (which yes stems from sales taxes' existence in the first place, coupled with the commerce clause) discriminates against your voters.
Similarly, many companies use Microsoft software and pay license fees. My company does not.
Would it be "more capitalist" if we were forced to pay a Microsoft tax, to eliminate the "market distortion" of using lower cost software?
To take an extreme example, using a tax shelter could lower the cost of a company's services while decreasing the efficiency of the economy.
Amazon doesn't enjoy the benefit of the CT state police. Hence, it is not efficient to force them to pay for it.
A tax shelter is only inefficient if it allows a company to consume services while forcing others to pay for them. If a company does not consume those services, it is inefficient to force the company to pay for them.
Also, who says Amazon pays the tax? Insert elasticity argument.
yummyfajitas, it frankly sounds like you're econtrolling. I looked at your profile and you seem like a smart, educated person, so I'll respond in good faith so you can see how weak your arguments sound.
> Taxes are compulsory only to prevent freeloading
Says who? This sounds like a stylised model from Econ 101.
> A tax shelter is only inefficient if it allows a company to consume services while forcing others to pay for them.
> Amazon doesn't enjoy the benefit of the CT state police.
I don't use the Merritt Parkway but that doesn't mean I don't owe tax on it.
> Pareto efficiency is a purely theoretical construct.
This from someone who just boiled the entire political economy of Connecticut down to a prisoner's dilemma?
> If a company does not consume those services, it is inefficient to force the company to pay for them.
What is your reasoning?
Perhaps you are sharing these thoughts before giving them a sound-check? I don't mean to be rude but what you're saying doesn't make sense coming from someone of your educational background.
In the real world, one efficient "tax shelter" is Amazon locating itself outside of CT. If Amazon were to pay taxes to CT, then CT would produce the public services necessary to support Amazon. Since Amazon is not located in CT, this would be wasteful. Thus, Amazon locating themselves outside of CT and avoiding CT taxes is A Good Thing.
[edit: you appear to have edited your post extensively after I responded to it. It's generally polite to indicate when you do this.]
Fair enough. I meant to use tax evasion as an extreme example to prove the inner case, but I can see how it would look like conflation.
> one efficient "tax shelter" is Amazon locating itself outside of CT
> Since Amazon is not located in CT, this would be wasteful.
Does not follow. Where is the dead weight loss?
Response to your edit: you haven't defined "better". And I'm still waiting for a real world case where $x+$epsilon has been dominated by $x.
So wait, you're looking for a case where $x+$epsilon government revenue has greater utility than $x?
Because that's the opposite of what you were asking for before...
Second, I want a real-world example of a "negative marginal utility" of taxation -- which tax rate was raised, who it affected, how they evaded it, and why it was good for the society at large.
Do have any other questions?
Edit: Wait, you want me to define a utility function for people? That was your first question? That's just a stupid question. Define your own utility function. I don't care what it is. And your second question is stupid too. Sorry, I'm not a keeper-tracker of tax evasion. So let's say "any time a poor person evades taxes." Or many of those cases. If you want a specific example, too bad. If the lack of a specific counterexample of the kind you specified is actually the barrier preventing you from changing your opinion about this, then you shouldn't bother trying to have opinions about things. The fact that some people get more value in government services than they pay in taxes is proof that there are people whose tax evasion would benefit society at large. This is a simple mathematical truism.
I was challenging you on this point because I don't believe you can come up with an actual example of a company's tax evasion benefiting society.
> Wait, you want me to define a utility function for people?
No, I wanted to prompt you to think about defining a single utility function for 300 million people. There is no way to do it, because you cannot compare interpersonal utilities. Your statements about governments having utility suggests that your thinking on this topic is muddled.
> If you want a specific example, too bad.
No empirical evidence, then?
> The fact that some people get more value in government services than they pay in taxes is proof that there are people whose tax evasion would benefit society at large.
It would not benefit society at large; the benefits would be private to the evader and everyone else's tax bill would go up.
> This is a simple mathematical truism.
Not only is it false, but I don't think you know what a truism is. A truism is a tautology.
> stupid ... stupid ... you shouldn't bother trying to have opinions about things
SamReidHughes, there is a saying that to know a little economics is worse than to know none at all. I think you are overconfident in your theories and should be more humble and polite in dialogue with others.
Where the social good lies is sometimes hard to work out; but I'd guess in this case Connecticut residents would be better off with an efficient Amazon and the ability to become Amazon Affiliates than with the small amount of tax revenue that this legislation tries to capture.
Would that it were so.
10-15% healthcare cost inflation has been spending states into debt.
And of course, affiliates that make a sizable amount of money will probably not move, but will instead simply incorporate in one of those states (one of which happens to be Delaware).
Enforcement might be another matter; seems like there's a good chance that you won't get flagged if you give Amazon a Delaware mailing address, even if you're (as a company or individual) resident elsewhere. But you don't even need to incorporate to do that.
It is still illegal at the federal level.
How much money can a state afford to spend on federal litigation against a team of Amazon's lawyers?
The wording of this implies that Amazon now has to charge sales tax to customers in CT. If so, isn't that a massive gain for the state? Or will Amazon just ignore the law?
INAL, but if CT didn't try to collect the tax from Amazon, I would expect Barnes and Noble to argue that bn.com sales should be tax exempt even though they have a brick and mortar store in Glastonbury, CT.
Now, if Barnes and Noble had a caravan of mobile RV bookstores registered in a different state that came into CT to sell books, B&N would have a better argument.
1. How much should states tax their citizens?
2. Given a certain amount of tax to collect, what is/are the best mechanism(s)?
You seem to be talking to point number one. Eliminating sales tax or collecting it from fewer transactions would accomplish that, but so would applying the law exactly as CT applies it but lowering the percentage collected on each transaction. For that reason, I find it confusing to look at a situation like this and slide into arguing about cutting spending. If they should tax people less, fine, but that's orthogonal to the question of how they tax people and the consequences of the tax mechanisms they choose to employ.
Yesterday both accounts were closed with no advanced notice and my business model is effectively broken. While I support Amazon for taking a stand, I'm angry at Amazon for not giving some sort of warning to affiliates. It also seems like they wasted a good opportunity to get people who are most passionate about the issue to make some noise for them. The could have sent emails to affiliates as the issue was unfolding, and instead of the short and rather unfriendly letter to affiliates saying "your contract has been terminated". They should have used that notice to give people more information and phone numbers and other contact details about who is behind this.
Seems to me like big chain stores buying protectionist legislation and selling it to voters as "protecting small business", while in reality they are protecting yesterday's dinosaurs and screwing forward thinking Internet based businesses.
Telling people that the affiliate program will be closed to them in 30 days would have been a lot nicer than telling people that their income stops effective immediately.
Edit: I guess what I'm asking is: am I missing something, or is there some reason why the affiliates couldn't have been alerted to the possibility earlier? Or, does alerting them at all require Amazon to pay sales tax?
Amazon has plans to build and operate a distribution warehouse near Columbia, South Carolina. State and local leaders rolled out the red carpet for Amazon -- a free building site, property tax cuts, employment tax credits, and the repeal of a county law prohibiting Sunday morning sales. But Amazon also wanted a five year exemption on collecting South Carolina sales tax. After all, they would have a physical presence in the state, and there's absolutely no ambiguity about whether or not they'd have to collect sales tax at that point.
When the state legislature voted "no" on the sales tax exemption, Amazon immediately stopped construction on the warehouse and took down all of the job listings for that location. There was a huge uproar, with supporters of the exemption accusing legislators of siding with "special interests." (Where "special interests" apparently means "every other business with a physical presence in South Carolina that doesn't get a sales tax exemption.")
Amazon won this game of chicken, however. Faced with massive voter backlash, the state legislature flinched and voted 90-14 for a new deal that would exempt Amazon from collecting South Carolina sales tax until January 2016. The bill became law earlier this week.
I do think Amazon's action was predictable, but it's still Amazon's action. I'm also not quite sure it was mandated by the decision; I suspect Amazon could still turn a profit even by retaining its CT affiliate program, but with the current landscape (% of states that do versus don't have such laws) it was a better business decision to pull out. Amazon is also probably looking at it as a strategic move to put pressure on other states, rather than considering the CT business case in isolation.
Why should it be any different than a mail-order catalog?
Coordinating the payout of sales tax for every state and city in the US? Coding and compliance nightmare.
If the Connecticut legislature legalized slavery (in direct conflict with federal law), and businesses were disgusted at the idea and refused to continue to conduct business in Connecticut, would you still argue the same reasoning?
"Connecticut Killed Affiliate Marketing with Amazon.com" seems clear to most of us.
I'm making two comments in the comment you're responding to:
1. The article headline is a bit misleading, and should've said something like: Amazon pulls out of CT due to a tax-law change. Even, Terrible CT Tax-Law Change Drives Amazon Out, or something. As it's written, I thought that CT had banned affiliate programs; in a rush to editorialize, the headline author sacrificed clarity about agency. Of course, maybe everyone reading is already following the saga, so I was the only briefly confused person, but nonetheless it seemed like an easy problem to avoid.
2. Amazon is probably pulling out in part due to, as you say, a feeling that this would set a negative precedent for their business, not solely due to the CT case taken in isolation.
Your slavery example seems off the mark; Amazon is not taking action due to moral opposition to CT's tax policy, but because it's bad for their business. They happily do business in states with all sorts of unethical laws without complaining about them, as long as those laws don't impact their profits.
Not sure why you got confused with the headline or this discussion.
Edit: on reread it appears that the law was written such that amazon would have to collect sales tax on all sales to CT buyers because the affiliates counted as a "local presence".
Why not require all internet companies to pay local sales tax, regardless of where they are located? That seems to be the argument here.
(I live in Washington state, where Amazon has always collected sales tax, so personally it seems like a non-issue.)
You're obligated to pay sales tax on items purchased out of state, by annual remittance. Almost nobody does it, but if you're ever audited (by your state), they can ding you if you don't. Amazon is plenty big enough to be specifically called out by cash-strapped state governments for, effectively, encouraging people to evade the law.
In other words, technically, you have to pay sales tax when you buy something, and if you don't then you're supposed to pay the equivalent amount in "use tax". In this case, CT is trying to wedge in there and get tax when neither the buyer or the retailer are in CT.
It's not a business killer for Amazon to charge and pay the taxes for every state. Many on-line retailers do. There is software and subscription services to keep billing systems up to date with current tax tables. But, who pays sales/use tax on what when a guy in CA buys something from Amazon that was referred by a CT affiliate? What about when someone in a state where Amazon has no physical presence buys from Amazon through a CT affiliate? My brain hurts and I suspect someone's getting screwed.
If Amazon had a retail presence, it would be collecting that tax and forwarding it to CT, and this law was an attempt to define affiliates as a retail presence.
I agree that it's not a "business killer", but lower prices drive sales, and that's why they've fought so hard to collect nothing.
Frankly I found the one-sided slant of the article a little nauseating. Couldn't you as easily say that Amazon has been abetting tax evasion for years? Who moved your cheese? Was it the Connecticut legislature or Amazon? Well, yes.
Connecticut wants that 6%. Not sometimes. Always. So they passed a law. Given a choice between collecting a 6% tax and hanging out their long-time affiliates partners to dry, Amazon picked the latter.
Even though I live in a high-tax state with a similar use tax requirement, I don't think Amazon's position is reasonable. Use tax compliance rates are generally pitiful. Both state and the federal Internet Tax Freedom Act allow for this kind of use tax. Local sales tax collection is not optional.
The goods in question do not magically teleport into the homes of Connecticut residents. They come over state roads, often carried by state residents in big trucks. If they weren't bought over the internet, they'd be bought at stores where residents would be paying 6% or more.
> In addition, if at any time following your enrollment in the Program you become a resident of Colorado, Illinois, North Carolina, Rhode Island, or Connecticut, you will become ineligible to participate in the Program, and this Operating Agreement will automatically terminate, on the date you establish residency in that state.
Performance Marketing Association Sues State of Illinois over Affiliate Nexus Law Lawsuit Aims to Protect 9,000 Illinois Small Businesses;
State Will Lose Estimated $22 Million in Income Taxes if Law Takes Effect
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