SNLFinancial recently published an article discussing the efforts of some states to force Amazon, Overstock, and other e-commerce companies to collect sales tax on transactions conducted through online marketing affiliates in those states. The article addresses the constitutional challenge to a similar New York law passed in 2008 but also emphasizes the fact that the effect of these laws may be the opposite of what was intended. States may be in lose-lose spot with e-commerce companies on sales tax, SNLFinancial, July 24, 2009.
As Eric Goldman, a law professor and fellow blogger on e-commerce issues, points out, states facing budget shortages think that such laws will result in increased tax revenue while they are actually more likely to curtail economic activity. I was also interviewed for the article and suggested that affiliate programs become less important to an e-commerce company's overall revenue model once the company gets a reputation in the marketplace. As a result, the largest e-commerce companies could (and, in many cases, would) simply sever ties with their affiliates in states which pass laws requiring them to collect sales tax on affiliate transactions. This would naturally result in lower income tax revenues for the state, as in-state affiliates lose a source of income, and shrink the state's overall tax revenue.
The article is definitely worth reading as it contains a number of insightful comments from industry experts. Let us know what you think.
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