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Oppose Misguided Online Sales Tax Schemes!
An Open Letter to the Kansas House of Representatives:
March 27, 2012
On behalf of our organizations’ thousands of members in Kansas, I urge you to oppose Senate Bill 371, which includes language that would heap crushing tax collection obligations on online retailers through a tenuous connection to in-state marketing affiliates.
Following the 1992 U.S. Supreme Court decision in Quill v. North Dakota, all businesses have followed a common set of rules. In order for a state to subject a business to its tax laws, that business must be physically located in the state. This “physical presence” test protects taxpayers from rogue state tax collectors and prevents businesses from shouldering the heavy burden of complying with the rules of thousands of different taxing jurisdictions nationwide. SB 371 would circumvent that test by asserting that businesses have a physical presence in Kansas merely through their relationships with in-state advertising affiliates.
Simply stated, so-called “affiliate nexus” schemes that have passed in other states have been utter failures by just about any measure. Rhode Island’s tax administrators say that their treasury has actually lost revenues following enactment of such a plan. North Carolina is not even keeping track of what little revenue has resulted from their plan because many businesses have decided to terminate their affiliate relationships rather than submit to onerous tax collection edicts. Meanwhile, Illinois officials have watched as successful businesses like FatWallet.com have fled the state for neighboring Wisconsin in order to escape the punitive requirements placed on them. What these policies have done is trigger high costs through litigation and lost business activity. Both North Carolina and New York have been sued over this issue, and the litigation in New York continues to this day.
If enacted, SB 371 would punish the state’s 2,300 affiliate marketers and harm prospects for future economic expansion. Kansas has been working to improve its business climate through policies like Rural Opportunity Zones. Heaping additional tax collection obligations on Internet retailers threatens to reverse some of that progress and harm the state’s economy. A loss of business activity and shrinking tax base are the last things any state needs during this time of economic uncertainty.
Kansas has done a commendable job raising the issue of tax reform this year in order to attract new employers. Passing SB 371 and its unconstitutional, job-killing tax hikes on businesses that sell online would undo some of that hard work on tax reform. We urge you to oppose this damaging piece of legislation.