From an op-ed piece in the Wall Street Journal this week:

Visiting college basketball teams usually don’t enjoy playing in North Carolina, and now Internet businesses don’t want to compete there, either. But while the state’s hoops programs are a source of pride, a new Internet tax isn’t going to win fans among North Carolina consumers.

The U.S Supreme Court’s 1992 Quill decision forbids states from forcing tax-collection obligations on out-of-state merchants, but Tarheel legislators still want Amazon and other online retailers to start taxing their constituents. The Seattle-based retailer has no physical presence in the state, but a pending North Carolina bill holds that since affiliate Web sites in the state link customers to Amazon, the company is now responsible for extracting cash from Carolina shoppers. Other proposed North Carolina legislation would apply a new tax only to Internet ticket resales, in direct defiance of the federal Internet Tax Freedom Act, which prohibits taxes that target the Internet with burdens not applied offline.

To its credit, Amazon yesterday refused to accept the expected new compliance burden and announced the cancellation of its North Carolina affiliate relationships. Said the company, “This is a direct result of the unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor.” So now the state won’t get the revenue, even as in-state Web retailers lose their ties to Amazon thanks to the legislature’s revenue grab. Brilliant.

Earlier this year, California tabled a similar measure after it met with strong opposition from Google, eBay, Commission Junction, and hundreds of other California companies small and large.  Unfortunately the state is in the middle of a severe budget crisis, and the “Amazon tax” has been slipped back into the budget bill and is being debated again this week.  What the revenue estimators don’t take into account is the fact that Amazon and other large online stores have proven they won’t play the game, and the state doesn’t get any money.  In fact, combined with income-tax losses from in-state advertisers, California could actually lose money on the deal.

Either way, I’ll be watching closely as it could be devastating to my business and thousands of others.  (Not because of the tax itself, but because of the loophole that lets retailers off the hook by terminating their relationships with in-state publishers like me.)

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