(Alexandria, VA) – The failure of California’s scheme todramatically expand taxation on Internet businesses proves the policy is badfor taxpayers, businesses, and even the governments that so doggedly pursuethem. That’s the word from the National Taxpayers Union (NTU), a grassrootsorganization that has fought such laws across the country and supports repealof California’s statute. NTU has over 52,000 members in California and 362,000 membersnationwide.
“Governments that have implemented so-called‘affiliate’ taxes on out-of-state businesses have found that revenue virtually nevermeets the projected targets, and may even end up costing them,” said BrentMead, State Government Affairs Manager for NTU. “California’s insistence onpassing such a counterproductive tax now threatens to damage or destroy as manyas 25,000 small businesses that relied upon affiliate contracts.”
Because ofCalifornia’s staggering overspending problem and persistent budget deficits,proponents of this law touted estimates that it would raise $152 million inrevenue from the new tax-collection requirements. But as has been the casewherever this scheme has appeared, online retailers like Amazon.com movedswiftly to sever ties with in-state affiliates rather than submit to the bill’sonerous provisions. As a result, the state will collect little, if any, of that$152 million in revenue, while simultaneously jeopardizing the $124 million inincome and corporate taxes currently generated by affiliates in the state.
In a cruel twist, the state mayquite literally have cost itself directly, some of its programs, like theCalifornia State Military Museum, were Amazon affiliates who will now lose anyoperating income previously derived from that line of business.
NTU has long argued againstaffiliate taxes because they attempt to impose the burden of collecting salestax on businesses that do not have a legitimate physical presence in the state.Furthermore, a large share of purchases made online are already subject tostate sales tax collection because of the dominance of so-called“brick-and-click” retailers, like Wal-Mart or Best Buy, that have physical storefrontsin addition to vibrant Internet operations.
“California continues to perform cutting-edgework on showing other states what not to do when seeking a sustainable fiscalfuture,” said Mead. “With yet another spectacular failure, perhaps the GoldenState’s reckless policy can conclusively prove that there is no pot of gold atthe end of the affiliate tax rainbow.”
NTU is a nonpartisan, nonprofitorganization working for lower taxes, smaller government, and economic freedomat all levels. More information is available at www.ntu.org.