Efforts to Flout Democratic Process Shot Down in California...For Now

A last-ditch effort by the California legislature to halt the Internet tax ballot initiative failed yesterday in the Senate. The legislation (AB 155) would have repealed then immediately re-enacted the Internet tax that was signed into law by Governor Jerry Brown in June.  Only the new bill would contain an urgency clause—a provision that would make it impossible to be put to a referendum.  While lawmakers supported the bill in a 22-12 vote, it required a two-thirds supermajority to pass.  Fortunately, the Republican caucus held strong against imposing the tax.

While some California legislators wanted to completely disregard the will of the voters and take away their ability to vote on such an important issue, their efforts to do this were diverted for the time being. The Senate has another opportunity to bring up AB 155 before the end of session this Friday.

Hopefully, Golden State voters will remember this attempt to circumvent democracy when voting on the measure next year. Until then, and unless AB 155 re-emerges, the race is on to explain to Californians why this Internet tax is an affront to the U.S. Constitution and a massive, job-killing tax hike.

California Legislators Attempting to Circumvent the Democratic Process, Force Through Internet Tax

In response to the California ballot initiative aimed at permitting voters to decide the fate of the unconstitutional Internet tax, legislators from the Golden State have found a way to avoid the referendum from passing: disallow the citizens from voting on the tax. This motion by the California legislature shows that they fear the referendum’s passage, forcing these legislators to flout their constituents by silencing their opinions.

Assembly Bill 155, introduced in the California State Assembly last week, moves to repeal and then reenact the current Amazon tax law, ABX1 28, signed by Gov. Jerry Brown in June. AB 155 was written solely to prevent California voters from voicing their opinion on the Internet tax, permitting legislators to thwart the democratic process and demonstrate their complete disdain for the will of the voters.

The main difference between AB 155 and ABX1 28, is that the new bill contains an “urgency” clause and would thus require a two-thirds vote in the legislature. According to the state constitution, bills that contain this urgency clause cannot be voted upon under a referendum.

Immediately upon its passage in June, the Internet tax caused 25,000 online advertising affiliates in California to lose some or all of their business. While setting out with the purpose of leveling the playing field among online retailers and brick-and-mortar stores, the Internet tax has certainly not accomplished this. It has only negatively impacted in-state businesses and placed a new tax burden on ailing Californians.

In a state with 12% unemployment, implementing new taxes is an absolutely unjustifiable move. It is important that California legislators allow their constituents a voice on this matter.

California Voters Oppose Internet Tax

In a recent survey conducted by the University of Southern California and the Los Angeles Times, researchers found that most California voters are in opposition to the newly-enacted Internet tax; the poll found that 49% of California voters are against its implementation, while 46% are in support of it. This bodes well for the Internet tax referendum; if 504,760 signatures are collected by September 27, the issue of Internet taxation will be placed on the ballot for voters to decide.

Signed by Governor Jerry Brown on June 28, this tax has quickly proven itself to be just as destructive in California as it has in other states with similar legislation. Online retailers have had to cut ties with their in-state affiliates in order to avoid this harmful tax, taking jobs and investment with them.

The Internet tax is simply another tactic by the State of California to cloak their overspending and general fiscal irresponsibility. California voters are not fooled.

D.C. Attempting to Implement Internet Tax

 The District of Columbia has become the latest government moving to force an Internet tax on its citizens. In the Fiscal Year 2012 budget (D.C. Bill 19-203), the D.C. City Council inserted a measure which would force out-of-state retailers to collect the District’s sales tax from consumers. This legislation would greatly undermine the physical nexus standard set forth in Quill v. North Dakota.

The District of Columbia’s Main Street Tax Fairness Act is anything but fair. By forcing out-of-state companies to collect and remit taxes in a locale in which they have no physical presence, this is a purely unconstitutional act. 

There are some rather vague provisions in this bill as well. One part calls for a small-seller exemption. Who exactly this exempts is unclear and unspecified. Another portion calls for a “reasonable compensation” for out-of-state retailers for the collection and remittance of the new taxes on their business. Once again, note the use of the vague word “reasonable.” These provisions leave many loopholes that can be easily manipulated.

While Congress technically has power over the District’s budget, they have rarely used this power to reject or amend tax provisions. It is important that Congress use this plenary authority to show their disapproval of this act. D.C. needs true tax simplification – not tax increases – and the new Internet tax does not achieve this.

California Voters May Decide Fate of Internet Tax

Late last week, Amazon.com filed a petition that would bring the issue of Internet taxation to the voters of California through a referendum. Governor Jerry Brown signed legislation into law two weeks ago that would force out-of-state online retailers to collect and remit sales taxes, even if the business has no physical presence within the state. The law essentially expands what it means to do business in California for the purpose of tax collection, considering in-state advertising affiliates of an out-of-state online retailer as a physical nexus of the retailer itself. The referendum moves to overturn this law in its entirety, allowing affiliates to get back into business with their respective online retailers within 90 days of the referendum’s passage. In order for the referendum to appear on the next state-wide ballot, 504,760 must be collected from California residents.

The Internet tax law has already proved to be harmful in California. In order to avoid paying for the unconstitutional tax, online retailers have already started cutting ties with their in-state ad affiliates. Many affiliates, whose income is dependent upon their relationship with online retailers, have already stated their intentions to move their business to a state where an Internet tax has not been implemented. George Runner, a Republican member of the California Board of Equalization, recently stated:

Each termination represents lost jobs and lost income for California – losses that could have been easily avoided had the governor and Legislature exercised a little common sense…Clearly, the ‘Amazon Tax’ is not working.

The Performance Marketing Association (PMA), which represents affiliate marketers, announced their support for this referendum. The referendum halting the law will keep 25,000 California ad affiliates up-and-running. Should the law remain, affiliates’ income will drop as a result of the tax, causing layoffs and business closings statewide.

Creating new taxes for the sole benefit of justifying the terrible spending habits of California legislators is irresponsible and shows a lack of concern for the well-being of the citizens of California. With this referendum, California voters will have the opportunity to tell their legislators exactly how they feel about this harmful tax.

California Gov. Brown Signs Job-Killing Internet Tax into Law

On Wednesday, California Governor Jerry Brown signed into law ABX1 28, legislation which will impose a sales tax on purchases made from out-of-state online retailers.  The law extends a business’s nexus standard to include in-state advertising affiliates, subsidiaries, and in virtually any other way the Board of Equalization decides. By signing this legislation, Governor Brown has effectively decreased in-state investment and driven jobs out of an already ailing state.

While written with the purpose of raising taxes, this legislation will prove to be extremely counterproductive for the state’s economy. Amazon.com, one of the online retailers which would be affected by the Internet tax, has already started to cut ties with its in-state advertising affiliates, which are small businesses dependent upon these contracts. More than 25,000 affiliates will be affected by the California law’s passage.

One such affiliate, Ken Rockwell from San Diego, has already stated his intentions to move his photography business out of the state as a result of the Internet tax. Of this, Rockwell stated “Will it be Las Vegas or Scottsdale or Ensenada? It’s a question of where, not if.” Thus, Governor Brown is driving much-needed jobs out of a state which is already suffering from an 11.7% unemployment rate.

This pattern has been witnessed in other states that have already implemented the Internet tax, such as Rhode Island and North Carolina. In these states, there has been no extra revenue generated. In fact, their respective economies have only worsened. Online retailers made the practical decision to move their business out of the state to avoid being subject to the tax, taking jobs and investment with them.

While Governor Brown has touted the Internet tax measure as “common-sense,” it is anything but. If his idea of “common-sense” is trampling on the U.S Constitution to drive investment and jobs out the state, one can only imagine what he considers nonsensical.

Louisiana Senate Kills Internet Tax Bill

Louisiana taxpayers scored a victory on June 22 when the State Senate voted against the implementation of a job-killing Internet tax in a 20-15 vote. This legislation (HB 641) would have forced out-of-state online retailers with no physical nexus to collect and remit sales taxes on purchases made on the Internet.

As has been seen in other states with a similar tax, such as Rhode Island and North Carolina, out-of-state companies are beginning to sever ties with in-state affiliates as a result of this unconstitutional tax requirement thus driving investment and jobs out of the state. While purporting to create a new source of revenue for its ailing economy, the Louisiana Internet tax would have created similarly devastating results.
 
As more states propose comparable Internet tax legislation, it is important to view how it has affected the states in which it is already implemented. Hopefully more state legislatures will take the step of defeating this unconstitutional tax, like Louisiana, in order to ensure future investment and job growth in their respective states.
Texas Lawmakers Challenge Governor Perry Veto of Job-Killing Internet Tax Bill

Governor Perry (R-Texas) recently vetoed legislation (HB 2403) which would have forced out-of-state retailers (i.e. Amazon, Overstock, etc.) to collect sales tax on their items, even without a physical presence in the state. Unfortunately, though, Texas House lawmakers defied Governor Perry’s decision and voted to keep this provision in a must-pass omnibus spending bill. If the language is not removed in the conference committee, these new taxes would prove to be greatly detrimental to Texan taxpayers and kill jobs in a state which has been historically known for its ability to create them.

Such Internet taxes also raise many constitutional concerns. In a 1992 Supreme Court case, Quill v. North Dakota, the Court ruled that a company must have a substantive nexus in order for the state to collect taxes from said company. The Texas measure attempts to greatly expand what it would mean for a company to have a presence in a state, arguably reaching beyond the constitutional borders created by the Supreme Court. There are now three lawsuits challenging similar laws in New York, Illinois, and Colorado, where a federal court recently granted a preliminary injunction.
 
Of the proposed Internet taxes, Governor Perry stated
"I will not put Texas job creation efforts in jeopardy, particularly as we continue to feel the effects of a challenging national economy. In the debate between jobs and taxes, I side with jobs." 
While these taxes are, indeed, unconstitutional, the consequences that this legislation will have on the Texas economy are equally disturbing. With this legislation, the supporting lawmakers are presenting a complete lack of regard for their constituents by driving investment out of Texas and driving taxes higher.
Louisiana House Passes Unconstitutional Internet Tax Bill

In a continuation of the recent surge in unconstitutional state Internet tax legislation, the Louisiana House of Representatives passed a bill on Monday (HB 641) that would re-categorize out-of-state companies as in-state, forcing them to collect taxes should they invest in the state or contract with in-state affiliates. The bill passed in a 78-14 vote and is currently being reviewed by the Senate Committee on Revenue and Fiscal Affairs.

As has been seen in other states with similar legislation, Internet taxes do very little to generate new revenue streams for struggling states. Under the guise of helping local small businesses, Internet taxes do more to kill jobs than create new ones. Rhode Island recently enacted an Internet tax which has since caused major fiscal and employment issues in the state. Rhode Island General Treasurer Frank T. Caprio recently called for the repeal of this tax: 
“The affiliate tax has hurt Rhode Island businesses and stifled their growth, as they’ve been shut out of some of the world’s largest marketplaces, and should be repealed immediately.”
Internet taxes not only harm in-state businesses, but cause online companies to invest in states that have not put similar taxes into law. If HB 641 is passed in Louisiana, the fate of the state’s economic situation will be no different; successful companies that would otherwise bring jobs and income to struggling cities will choose to invest elsewhere.
 
It is of utmost importance that the progression of this legislation is stopped. If passed, it will produce extremely detrimental effects on the state economy and the citizens of the Louisiana.
 
ATR recently sent a letter to the Louisiana state legislature and Governor Jindal regarding this very issue. For a PDF of this letter, click here.

 

Lawmakers in California and Louisiana Working to Pass the Latest Internet Tax Scheme

California legislators are busy moving along their latest job killing and unconstitutional Internet tax bills. The internet tax has proven to be ineffective in states that have passed this legislation as many have introduced repeal bills after experiencing the detrimental consequences.

SB 234, recently passed in the Senate and set for hearing before the Assembly, attempts to dissolve the physical nexus standard that prevents the state from forcing out-of-state companies to collect and remit taxes. Unlike the previously reported AB 153 and AB 155, which would force online retailers to terminate contracts with affiliates in California, the Senate bill is even more dangerous. SB 234 not only cedes authority to the Board of Equalization to figure out how to force online retailers to collect tax, but worse it is potentially not subject to the two thirds supermajority vote requirement. If this legislation passes, all authority regarding who is required to collect and remit taxes will be relinquished to the California Board of Equalization. This is a slippery slope that is enormously threatening to small businesses and job growth.

A similar bill in Louisiana, HB 641 has also recently been introduced. This legislation would require out-of-state retailers to collect and remit sales tax for purchases made on the Internet. As seen in states such as Rhode Island and North Carolina, this tax will do nothing to alleviate the state’s deficit and will only accomplish putting Louisiana companies out of business and increasing the tax burden on the already struggling consumer.

At a time when most states are experiencing the highest unemployment in history and mounting debt, raising taxes is not the answer. HB 641 will deter retailers from investing in the state and cause an even greater increase in job loss. The bill is not only likely unconstitutional, but bad policy.  California legislators are busy moving along their latest job killing and unconstitutional Internet tax bills. The internet tax has proven to be ineffective in states that have passed this legislation as many have introduced repeal bills after experiencing the detrimental consequences.

Senators Lead the Charge to Protect Digital Goods from Discriminatory Taxes

As states mired in overspending problems continue to search for new sources of revenue, policymakers around the country are looking to tax digital goods. Already twenty-three states explicitly tax downloaded music, ringtones, movies, and other goods, but the upcoming year will be an important turning point in defining if and how downloaded goods will be taxed.

Thankfully, Senator Ron Wyden (D-Oregon) and Senator Jon Thune (R-South Dakota) are stepping up to deliver a national solution, which will protect digital goods from discriminatory taxes.  The legislation,introduced last Thursday May 12, would reportedly prohibit states from enacting taxes on downloads at a rate higher than the sales tax.

The bill would also mitigate the possibility of consumers paying multiple taxes on one time digital transactions. For example, it bars multiple states from taxing the same good when it passes from businesses, through servers, and to a consumer on the other side of the entire country. This follows significant precedent at the federal level, such as the Railroad Revitalization and Regulatory Reform Act of 1976 that prevents states from enacting discriminatory taxes on railroads that traverse multiple states.

Currently, of the twenty-three states that have enacted digital taxes, eight bypassed the legislature and authorized the tax through the Department of Revenue, failing to hold a vote on the matter. The Wyden-Thune bill would prevent this; ensuring tax hikes are never enacted without public scrutiny.

It is essential to make sure state tax codes do not discriminate or apply significantly high taxes on downloaded goods. The future of how we consume music, movies, books, and a whole host of services is digital. As the industry grows, a simplified tax system is necessary to ensure the overall tax burden on the goods we use daily don’t rise. Thank you to Senator Wyden and Senator Thune for leading the charge.

States Push Internet Taxes While North Carolina Looks to Repeal

As many states wind down legislative sessions, Internet tax legislation continues to be debated in states desperate for revenue. Here is a quick rundown of bills around the country.

In Connecticut, an affiliate nexus Internet tax was passed as part of the Senate’s budget plan (HB 6387 and SB 1007). Now on the books in five states, the bill would require out-of-state online retailers to collect tax if they merely advertise with affiliates in Connecticut. The biggest problem we consistently point out: Internet retailers simply end their advertising agreements, the state never collects more revenue, and advertisers lose their jobs (see the paragraph on North Carolina’s repeal effort at the bottom).
 
Meanwhile, Alabama legislators are considering a bill (HB 365) that would force out-of-state retailers to notify consumers of their obligation to pay taxes on their purchases. The legislation is under consideration despite the fact that a federal District Court in Colorado halted implementation of a strikingly similar law, noting it clearly violates the Commerce Clause and U.S. Supreme Court precedent by significantly burdening out-of-state retailers.
 
Yet, while others are introducing bills to tax Internet sales, North Carolina – one of the first states to pass an Internet tax – is seriously considering two measures (HB 867 and SB 715) that would repeal the law. North Carolina has witnessed first hand the negative repercussions of the Internet tax. Since its enactment, the law has failed to collect any additional revenue for the state or level the playing field with in-state businesses, instead simply costing North Carolina advertisers their jobs.
Americans Overwhelmingly Oppose Internet Taxes, Arkansas Lawmakers Apparently Don't

State legislatures across the country continue to push for Internet taxes, despite widespread opposition. This week, a Rasmussen poll reported that 63 percent of Americans oppose online taxation.  Taxing the Internet is bad tax policy; the bills being considered by multiple states kill online advertising jobs, unconstitutionally reach across state lines, and stifles economic growth. 

Last week, Arkansas legislators became the latest state to tax the Internet, when they quickly passed SB 738 and Gov. Mike Beebe signed the bill into law. More surprisingly, however, Texas – known for its independent, low-tax culture – is seriously considering an Internet tax scheme that originated in New York, HB 1317. Here’s a brief lay of the land:
 
Texas: HB 1317, SB 1798, and HB 2403 all attempt to tax the Internet and reach across state borders, but in different ways.
 
Alabama: HB 365 and HB 373.
 
California: SB 655 will get a hearing on April 27th. Meanwhile, AB 153 recently passed a vote in the Assembly’s Revenue and Tax Committee. AB 155, an affiliate style nexus tax, is still sitting in committee.
 
Missouri: HB 970, an affiliate nexus tax, is awaiting assignment to committee.
 
Pennsylvania: SB 676 was referred to Senate Finance Committee.
Illinois Gov. Quinn Signs Off on Internet Tax, Arkansas Senate Follows Lead

Today, Illinois became the forth state to impose an affiliate nexus Internet tax. After some deliberation, Gov. Pat Quinn continued his streak of enacting economically damaging tax measures by signing House Bill 3659 into law.

The so-called “Main Street Fairness Act” attempts to force online retailers that aren’t based in the state to collect sales tax if they use in-state advertisers or other affiliates. The measure is a legally dubious run-around of current U.S. Supreme Court law under Quill v. North Dakota, which only permits a state to force a company to collect tax if they have a physical presence.
 
The Department of Revenue, egged on by proponents, claims the bill will raise taxes by up to $170 million per year.  However, a more likely outcome is for online retailers with in-state affiliate to sever their ties, relieving them of the unconstitutional tax collection burden. This is exactly what happened in Rhode Island and North Carolina. Only in New York do affiliate programs continue to exist, and that is simply to show harm in an ongoing legal challenge.
 
Severing nexus also means that in-state affiliates will go out of business, forcing them to relocate to neighboring states, as many have vowed to do in Illinois. Not only will the state fail to collect new Internet tax revenue, it will lose existing revenue generated from affiliate income taxes. All of these repercussions make the primary goal of the legislation – leveling the playing field – completely irrelevant.
 
Meanwhile, the Arkansas State Senate passed a similar measure yesterday and legislation is under consideration in South Dakota, Arizona, Hawaii, Connecticut, Minnesota, Vermont, Maine, and – of course – California.
California Board of Equalization Raises Alarm Concerning Internet Tax Legislation

California is once again trying to pass an Internet tax. Yet, at the California State Assembly oversight hearing for AB 153 and 155, the Board of Equalization (BOE) raised concerns regarding the potential outcomes and consequences of the legislation. The video below features the Board of Equalization staff’s attempt to explain their recent bill analysis.

When asked how much revenue AB 153 and AB 155 will generate, the Board of Equalization struggled to provide a valid answer. Unable to come up with a credible figure, they describe the methodology behind determining the Board’s figures and the revenue estimates as “subject to considerable uncertainty.”
 
The BOE’s roundabout explanation confirms what we and others have been arguing all along. The likelihood that the government will actually take in any revenue is dependent upon the willingness of online retailers to continue affiliate advertising programs after the likely unconstitutional law is passed. These are the programs that would give online retailers a presence in California, which the state thinks could allow them to force out-of-state retailers to collect tax. Additionally, it depends on whether retailers using eBay prior to the proposal’s enactment continue to use the company in the same way. However, many retailers have already come forward and given the BOE confirmation that they will terminate affiliate ad programs if the legislation is enacted.
 
Therefore, the $317 million in revenue which the BOE estimated is not only uncertain, but highly unlikely. The BOE concludes that if companies terminate an affiliate program, which is very likely given the outcomes in other states that have passed the Internet tax, employment will decrease and therefore negatively impact income tax revenue. Consequently, the overall revenue for the state will decrease.
 
The Board of Equalization confirms opponents’ views that the legislation will kill jobs, drive business out of the state, and will not generate nearly as much revenue as proponents claim.