State sales tax debate goes online
Posted July 1, 2009 6:47 p.m. EDT
Updated July 1, 2009 7:21 p.m. EDT
Raleigh, N.C. — Cary resident Fred Tutwiler works from home primarily as an Internet marketer and makes his living off the Web.
His main source of income is click-through sales from links he has on his three Web sites to other companies' sites.
For example, if a visitor to his site purchases a product on another site using the link on his page, the company pays Tutwiler a commission.
But some of those commission opportunities are disappearing because of a provision in the state budget proposal that clarifies when out-of-state retailers must collect sales tax on sales made in North Carolina.
Amazon.com is the latest company to bail.
Last month, Tutwiler received a notice from the online retail giant informing him that his associate account was closed as a "direct result of the tax collection scheme expected to be passed any day now by the North Carolina Legislature."
To help fill a projected $4.6 billion budget shortfall, Democratic lawmakers want online companies, such as Amazon.com, as well as music and video download sites, that have a presence in North Carolina to collect sales tax.
Doing so, they have said, would generate up to an estimated $18 million a year.
Amazon.com generally does not charge sales tax on purchases made through the site – an exception is in New York, where the state won a lawsuit that requires Amazon to collect sales tax.
The company argues that it doesn't have a presence in North Carolina and that its affiliates serve as advertisers. The state, however, claims the affiliates are representatives doing business on behalf of the company.
Seven more states are currently considering similar legislation. Amazon.com has also dropped affiliates in Hawaii and Rhode Island over similar disputes.
Those in support of the budget provision have said it also has to do with fairness. A local company is at a disadvantage if it collects a sales tax compared with an online retailer that does not, some lawmakers have said.
Sen. David Hoyle, co-chairman of the Senate Finance Committee, wants the Department of Revenue to go after years of back taxes from Amazon.com
"We're trying to correct a wrong, and I'm sorry some innocent people may be getting hurt in the process, but Amazon owes us," Hoyle, D-Gaston said. "They've got to pay us."
"They're not doing it to make it more fair to brick-and-mortar businesses," he said. "They're doing it because there's billions of dollars a year sold on the Internet, and they want a piece of it."
So do some lawmakers.
“Seeing how many holes we can shoot in our foot is not an economic strategy North Carolinians can count on to reduce our record 11.1 percent unemployment rate,” Senate Republican Leader Phil Berger, R-Rockingham, said.
Berger has called the plan "just the beginning of the job and small-business losses for North Carolina’s economy."
“We need to be finding innovative ways to attract business to North Carolina, not creating obstacles that drive businesses and jobs from the state."