Cutting Out The Tax Man

Rather than cut spending, several state governments went off in search of new revenue streams.

That means new things to levy taxes upon.

What better than the online retailer, who pays tax only in the place where its headquarters are physically located? Something like Amazon, for example. They sell books in California and North Carolina and Hawaii, but there's no sales tax paid to the states where the buyers reside.

The legal issues have been much discussed, and it's pretty clear that a physical presence is required to collect state sales tax. Hence, a few states decreed that the Amazon affiliate program equals a physical presence.

Anyone can set up a little Amazon shop online, giving out suggestions for books to buy or recommending music titles or the like. If you, the shopper, then go through the affiliate's "shop" to make your purchases, the affiliate gets a little bit and it could be a nice little work-from-home business.

Then you must pay sales tax, mighty Amazon, said the legislature of North Carolina and Amazon said, good-bye affiliates. We're out of here.

By trying to weasel around the law, North Carolina managed to hurt those who were profiting from the affiliate program. By eliminating their physical presence, Amazon isn't liable for state sales taxes so that income stream never produced a drop, and the affiliates are paying less in income tax because they're out of business.

Hawaii's governor figured it out and realized that it was a losing proposition. Amazon didn't much benefit from local affiliates, but the affiliates derived some benefit from Amazon. Governor Linda Lingle vetoed the legislation that would have levied sales tax on Amazon in Hawaii, rather than see Amazon cut out the affiliate program.

There's still no indication that the legislatures are looking at ways to save money rather than rake in more. The push to tax on-line retailers goes on.