Money Grubbing Tax Grabbers

States starving for tax revenues may watch this particular gambit by New York state very carefully:

Living up to its distinction as one of the most heavily taxed states in the nation, the Empire State has found a new way to subject its citizens to even more taxes. New York tax officials are looking to fill budget shortfalls by looking beyond state borders. As part of its budget, New York passed a first-of-its kind law that saddles sales tax collection burdens on catalog and online retailers in every state of the country.

As of this month, Assembly Bill 9807 requires out-of-state retailers who sell products to New Yorkers to register as vendors with New York tax officials. Civil and criminal penalties now face retailers who fail to comply. What’s more, out-of-state retailers refusing to register have already been threatened with possible auditing and charges for years of back taxes.

The new law zeroes in on out-of-state online retailers who pay a small sales commission to New York-based Web sites hosting online ads. Under AB 9807, a mere Internet ad banner placed on a New York-based site triggers tax collection obligations under the new law.

Given how tax laws are used in this country, this shouldn’t particularly shock anyone. Governments, at all levels, have become revenue driven. It’s a national disease. Having made promises they can’t keep at present revenue levels, they’re all engaged in finding new revenue streams through taxation (or fees, or surcharges, or however else they choose to try and hide them).

The one problem they all face is resistance from those who actually live under a particular government’s span of control not being at all keen on paying the freight for the unkept spending promises that government has made.

So increasingly governments are forced to turn to getting the desired funds by other means. For years, local and state governments have racked up huge taxes on hotel rooms and rental cars. And airport taxes. The people effected are passing through, so they present a perfect opportunity to soak them and ignore the complaints. Easy stuff.

But, obviously, that’s just not enough in terms of revenue to satisfy these ravenous creatures. The internet has hung out there like a ripe revenue plum for years. It causes an almost Pavlovian response when tax grabbers think about tapping it.

And that is exactly what NY (and apparently CA) are attempting.

Now, as the article points out, there are some rather severe constitutional problems with the NY law. Previously the Supreme Court has ruled (in Quill Corp. v. North Dakota (1992)) that corporations lacking a physical presence within a state cannot be subject to its sales and use taxes requirements. It also said corporations that reach customers only through common-carriers, the mail, or software licensing agreements can’t be subjected to tax collection burdens.

But NY seems bent on testing that ruling. And the Supreme Court has left Congress some latitude to address the issue. That means, of course, with the cooperation of the US Congress, this tax could, at some point, become a reality.

In the meantime, Amazon.com has taken the law to court and apparently Overstock.com has also filed a lawsuit. Neither have a presence in NY, but both have “associates programs” where website owners pick up a few bucks for running their ads.

Of course, if you think about it, the easiest way for any online retailer to avoid problems is to exclude NY from places to which they’ll sell. And while I’m sure many NY storefront retailers would love to see that, who, as usual, would end up being the loser when all is said and done?

Yup, the same guy as always – the consumer who just happens to live in NY and is now a captive of the storefront retailers. With gas prices at record highs and the possibility of online savings severely limited the consumer is left with far fewer choices, and, most likely, much higher prices.

And when NY state tax revenues don’t meet expectations (based on optimistic projections against which money will be borrowed and promptly spent), guess who’ll be on the hook to make up the revenue gap as well?

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