The Amazon Tax

In these cash-strapped times legislators everywhere are trying to find creative ways to raise revenue. California, for example, is issuing IOUs to help temporarily ease its cash crunch. Lawmakers in both Rhode Island and North Carolina are trying another tactic: they are trying to tax the internet.

Before we pass judgement, however, a little background is in order. Way back in the mid 1990′s, when the nascent internet was just developing “ecommerce” in earnest, Congress decided it was best not to tax the internet so as not to nip in the bud the growth engine that ecommerce was deemed to be. State legislatures were and still are very worried about lost sales tax revenue. If a company has no physical presence in your state, the state can not collect sales taxes from it. So when Amazon ships a book from Washington to Colorado, Colorado can not collect sales tax because Amazon has no presence in CO. Washington does not tax Amazon’s sales (unless in WA) because the shipment to CO is inter-state commerce, protected from tax by the Constitution.