How Internet sales taxes in CA could drive VigLink & others out of the state
xconomy.com
xconomy.com
As in, the vast majority of the effect will be to tax (mostly) out-of-state businesses while creating a level playing field for local retail businesses that have to pay sales tax?
Why would that drive anyone out of state? They'd have to pay the tax anyways if they're out of state and selling to California residents.
As expected, the article provided no reasoning. Ctrl-F found the word "tax" once and it was a non-sequitor about how great the company is and they're gonna leave because of this tax.
EDIT: It's on page 3 of the article.
The interstate commerce clause of the constitution and subsequent case law establishes that one state may not tax the businesses of another unless it has a physical presence ("a nexus") in it's state.
California and a number of other states are attempting to redefine nexus more broadly in an attempt to be able to force eg Amazon to collect sales tax from it's residents. Amazon has established that they would rather stop doing business with CA affiliates than (effectively) raise prices.
This should matter to you because affiliates are just the tip of the iceberg. One of the California proposals already contemplates that having subsidiaries, servers or _vendors_ in CA would establish a nexus. So let's say you're the entrepreneurs behind CloudKick (to use an already exited example from Y Combinator.) If these proposals had been law when they were looking for customers, they would have found many customers concerned that using CloudKick would obligate them to collect sales tax from their customers in California. Collecting the taxes would of course only be part of the issue - computing when and how much to collect in accordance with the latest version of the law in every state would be a significant burden.
The states of course are perfectly entitled to seek new revenue, especially in times of economic distress. However we believe lawmakers should stick to strategies that work. Historically these laws have resulted in _reduced_ tax revenue and job flight. (the merchants cut ties with affiliates in those states and the affiliates either move or cease operation.) They also make investment in these kinds of business models more challenging. For a state as dependent as California on innovation, we think this is just bad public policy. (Also the Performance Marketing Association has filed suit against the state of Illinois arguing that it's affiliate tax law is unconstitutional.) The correct place for this to be taken up is at the federal level since the federal government actually does have the right to impose taxes on interstate commerce. Senator Durbin of Illinois has announced he intends to introduce legislation to address this federally in the fall.
If you're still reading and you're motivated to do something, check out http://25000businessesatrisk.com/ for California or http://performancemarketingassociation.com/nexus-tax for the rest of the country.
Oliver Roup Founder / CEO, VigLink
Sucks that you guys are the ones getting punished, here, the "nexus" mechanics are stupid. I'm not a California resident but I do think that if they have a sales tax, it should be across the board and include things purchased on the internet by CA residents.
Even pre-Internet, there was a problem with this: California law can't force businesses outside of CA to collect sales tax for CA residents. So if you bought something in another state, or from a catalog, you were suppose to report that on your income taxes and pay the appropriate CA sales tax. Of course, no one did, but it wasn't a big deal because there wasn't a lot of money in these sorts of sales.
With the Internet, more and more purchases are going to businesses that are out of state (e.g. Amazon). Since most people are habituated to having the sales tax included in purchases, they probably don't even realize they owe sales tax at all. Or if they do, they probably don't report it since no one likes to pay more taxes.
So now we come to this "nexus" problem. Currently neither Amazon nor its subsidiaries are in California, so CA laws don't apply to them and they don't have to collect sales tax for CA residents. This represents lost revenue for the state, but by changing the nexus rule to include affiliates, the state can get its sales tax laws to apply to Amazon and thus get more revenue. Amazon is resisting this because it will effectively raise their prices to CA residents (of course, CA residents were suppose to be paying that anyways).
What actually happens if the law is passed should be interesting. Amazon has said they will drop all of the CA affiliates if the law passes, just as they did in Illinois. However, New York passed a similar law and Amazon started collecting NY sales tax instead of cutting off its affiliates, presumably because the hit from having to collect sales tax was less than the money that would be lost from not having it's NY affiliates.
Granted, a lot of other relatively business-unfriendly California tax structures have not (so far as one can tell - without a control group).