New York's "Amazon Tax" and You

New York has become the first (so far as I know) state to try to close the “Amazon Loophole” in its sales tax collections. With the passage of a new state budget, they’re requiring out-of-state interstate retailers who do $10,000 or more of business per year with New York residents to collect and remit sales tax on those purchases. The theory is apparently that pushing out ads and making web sites available gives you a “presence” in the state sufficient to get around the historic Quill decision which made mail-order merchants exempt from such collection requirements.

Most web workers probably won’t feel the effects directly on the selling side: the bulk of us are selling services, rather than goods, and so don’t fall into a category of sales where sales tax is collected. But if your web business includes shipping anything physical, from computers to hand-knit booties, to New York, you’ll need to keep track of what happens as the State Department of Taxation and Finance issues regulations to implement the tax.More directly affected will be web workers who actually live in New York. In theory, this change doesn’t impose any new taxes on purchases: like most states, New York has a “use tax” with exactly the same rate as the sales tax, applied to out-of-state purchases brought into the state. But with the exception of big-ticket items like automobiles and boats, most states have made little or no attempt to collect use taxes, relying on an honor system where people are supposed to report their own purchases and pay the taxes once a year. Most people, frankly, don’t.

So the net effect for New Yorkers who buy things over the web will be higher prices, as e-tailers pass along the new charges to their customers. And in some cases, it will be higher prices for all of us, as the overhead costs of the new bookkeeping get absorbed into general prices. It’s likely that Amazon and other large web merchants will sue to block this law; if they don’t succeed, it’ll be time to take a second look at web ordering to figure out if the convenience is really worth the cost.

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