New York Lawmakers Set on Making News on the Web

New York Governor Eliot Spitzer must be jealous of the media attention received by the man filling his Attorney General shoes got this week with the passage this week of the pointless E-Stop legislation. That's the only explanation I can think of for his new plan to require companies to collect New York State sales tax for online purchases if they have $10,000 or more in sales in the state, even if they don't have a brick-and-mortar store there.

Previous attempts to do this have been put aside, but Spitzer seeks to force the hand of the State Legislature by putting it in the budget. Yes, that's correct; Spitzer pulled a number out of the air, stuck it in the budget, and will make it look like the Legislature is throwing money away if they don't approve it.

Now, I have the advantage here of being a New York State resident, who can see how completely misguided this is. New Yorkers are ALREADY supposed to be paying sales tax on their online purchases, giving either an estimate of tax not paid on purchases, or opting for the flat-rate amount that they assign you. I'm willing to bet that I actually end up paying MORE by paying the flat rate because it's not worth my time and energy trying to figure out which online purchases I'm already paying tax on and which I'm not. When Spitzer came up with his $47 million for the budget, did it include losing that additional claim on everyone's returns?

The claim is that by not hitting New Yorkers with sales tax at the time of purchase, online companies like Amazon are given an unfair advantage over smaller, local businesses. And to make the point, a small bookseller in Buffalo is quoted by the AP:

“I think it's way past time that Amazon.com collects sales tax,” Jonathon Welch of the Buffalo-based independent book store Talking Leaves Inc. said in a written statement.

“It's a terrifically unfair advantage that has cost the states in which they operate a vast amount of money,” Welch wrote. If the state is not collecting sales tax, they are collecting it in other ways. (The proposal would) even the playing field for us quite a bit.”

I was actually amazed there was an independent book store left in America when I first read the quote. Amazon has succeeded because they follow the premise that many Web 2.0 companies are based on: the Long Tail. Small bookstores were driven out of business by large chains like Barnes & Noble , who were able to have a larger stock available to customers, and now Barnes & Noble is losing ground to companies like Amazon who are able to provide an even larger stock available 24 hours a day, 7 days a week. It isn't the sales tax issue that creates the “unfair advantage;” it's having everything you can think of available at your fingertips at any time of day.

New York already has one of the highest tax rates in the country. The sales tax alone is in the 8% range in most counties, added on to property and income tax. New York State even wants your tax REFUND from the previous year declared on your taxes, which defies explanation.

Spitzer's proposal flies in the face of the 1992 U.S. Supreme Court ruling that prohibits collection of sales tax without a physical presence in the state. How does he figure to work his way around this? By declaring any web site with an affiliate link to be a physical presence. In all likelihood, rather than deal with the mess of trying to collect sales tax for New York purchases, companies like Amazon would simply choose to deny Associates accounts for New York residents, which would alleviate the sales tax issue as well as reduce the income going to New Yorkers. Makes sense, right?

New York lawmakers seem set on making news on Web issues without trying to understand the technology and all its implications in order to adjust for it.