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An Open Letter to the Utah Senate: Oppose Tax Hikes on Online Shopping!
February 28, 2013
On behalf of National Taxpayers Union’s 3,300 members in Utah, I urge you to oppose Senate Bill 226, which would require out-of-state online retailers in an advertising relationship with Utah-based websites to collect sales taxes from customers. This “affiliate nexus” tax would place 2,200 Utah businesses at risk. If SB 226 is enacted, many out-of-state companies would sever ties with these Utah businesses, forcing them to relocate or endure financial harm.
Affiliate nexus schemes attempt to create a false physical presence by linking out-of-state retailers, such as Amazon.com, to in-state websites who advertise for the retailer. Such schemes are constitutionally dubious as they clearly violate the intent of the Supreme Court’s 1992 Quill v. North Dakota ruling and create onerous barriers to interstate commerce.
That simple principle was at the heart of the Illinois Circuit Court’s ruling in April 2012. There, the judge ruled that a statute similar to SB 226 was facially unconstitutional and held the state law violated the federal Internet Tax Freedom Act, which prohibits states from unfairly targeting online activity for tax purposes. This ruling likely had the effect of sparing Illinois even greater damage from its own shortsighted policies. The expected sales tax revenue never materialized, and major affiliates like CouponCabin and FatWallet had already moved across state lines.
Illinois is not the only place where the “affiliate nexus” tax failed to raise the projected revenues. North Carolina officials report that although they have not tracked revenues specific to their affiliate nexus scheme, they experienced a drop in out-of-state sales tax collections in the year following implementation of the tax. Additionally, Rhode Island’s tax administrators say that their treasury lost revenues following enactment of the tax. At the same time, these policies have imposed high costs on states like Rhode Island, North Carolina, and New York through litigation and lost business activity.
Clearly, these tax schemes have proven to be failures in other states. The Utah legislature need not, and should not, add to complicated tax laws by imposing a new tax collection obligation on online shopping through affiliate marketers. Our members urge you to oppose SB 226.