(disclaimer – I am a happy Amazon Affiliate, and I’m glad I don’t live in North Carolina!)

A while back, a ruling came about that set a precedent for states insisting online retailers to charge state sales tax for online sales to residents in their state.

In a nutshell, if the business in question does not have operations in the challenging state, they don’t need to charge sales tax.

(In most states, the customer is expected to report and pay the sales tax on online purchases via their annual state tax return – don’t you? Obviously, having the retailer collect the tax is far more ‘efficient’).

The 800 lb gorilla in this argument is Amazon.com, the largest online retailer, which obviously prefers not to charge its customers sales tax.

Recently, NY passed a law insisting Amazon charge NY sales tax, arguing that Amazon has an affiliate program which effectively places Amazon sales operations in every state in the union.

A little background…

Amazon’s affiliate program – ‘Amazon Associates’ – enables bloggers and other websites to link to products within Amazon’s site. If a customer purchases something after clicking the link, the website (the ‘associate’), gets a commission from Amazon.

I use this on StationStops all the time. I like to write a lot of gadget reviews on the site, and have no problem linking out to Amazon from them. I buy a ton of stuff from Amazon every year, and love their service, selection, and pricing. Not only that, but after reading my review of a product, there is no other place I would recommend to readers for more information on that product than its product page on Amazon.

It doesn’t get me rich, but Amazon sends me a little gift card for the amount each month and its a great little treat for my work.

So, NY state insisted Amazon charge NY state sales tax for this reason, and Amazon begrudgingly did it.

Why? It was NY state, an important and large population for US online sales – and affiliate sales as well.

Unfortunately, North Carolina didn’t catch that last part.

North Carolina recently insisted Amazon charge NC sales tax as well, under the same argument that there were bloggers in NC actively ‘affiliating’ for Amazon.

Same threat, different response.

Amazon, rather than cow-towing to North Carolina’s demands, simply said goodbye to ALL of its North Carolina affiliates, which would nullify the legal argument.

Oops.

This is not good for North Carolina. Amazon Affiliates is the one of the largest affiliate programs there is, and Amazon easily injects millions of dollars of affiliate commissions – and supports actual jobs within the state for people and websites who rely on Amazon Affiliates for part or all of their online revenue generation.

Those millions in taxable revenue are now gone.
Those jobs are now gone.
Amazon just took its ball and went home.

The net effect is as if North Carolina simply stepped up to a thriving multi-million dollar business employing hundreds of people within its borders, and drop-kicked it to Georgia.

Want more chilling effect?

Given this experience – how interested would you, as an online publisher, be in setting up (or continuing) a business in North Carolina, knowing you are not eligible to utilize one of the most lucrative online revenue tools in that state?

No thanks!

North Carolina now has a reputation for having a contemptuous relationship with online retailers in general. That doesn’t bode well for setting up shop there either.

As a NH native, I’ve never appreciated sales tax anyway.

Federal income tax? Sure. The feds provide a lot of services I enjoy every day.
State Income tax? Sure, I get state services as well.

But sales tax?
That one has never made any sense to me.
Sales tax is just gratuitous.

I mean, you taxed the money I earned.
Then you taxed the money I spent.

That’s just double-dipping.

If I were to choose one or the other though, I would choose sales tax, since that would absolve the need for almost all residents to file a state tax return.

On Leo Laporte’s TwiT podcast last night, someone threw out a figure that 55% of all money Americans earn is eventually paid out in taxes – income, sales, property, specialty (e.g. cigarettes and gasoline, luxury), or state fees (like car registration etc).

That’s insane, but sounds about right.

This whole story reminds me of whats going on in a lot of other states regarding taxes right now.

For example, Long Island has been grumbling about seceding from New York, because Long Island pays about $3B more in taxes then it gets from NY state in services.

In California, a lot of businesses have sought to leave the oppressive taxes and requirements of California employers behind, by moving to the business-friendly neighboring Nevada.

But my favorite example is Maryland, which couldn’t balance its budget, so they decided to soak their wealthiest residents with an (up to) %6.25 tax rate.

The result? ONE THIRD of all of the millionaires in Maryland moved, directly resulting in $100M LESS in collected taxes.

The moral of the story?

States, please remember – anyone who makes enough money to pay a lot of taxes in your state can *easily* afford a moving truck.