Leave Amazon out of deficit mess

Across the nation, states are struggling through economic woes that have left them with enormous budgetary deficits. As a result, a number of state governments have sought to raise capital by implementing certain strategic measures. Two months ago, for example, North Carolina considered privatizing its state-operated Alcohol Beverage Control system to raise approximately $300 million. Although that approach didn’t come to pass in North Carolina and didn’t catch on around the country, some states have taken warmly to another idea—enacting legislation that would require web behemoth Amazon.com to start collecting state taxes on sales to residents.

Since 1992, online retailers such as Amazon have only been obligated, in accordance with the Supreme Court ruling in Quill Corporation v. North Dakota, to collect state tax for those states in which they maintain a “physical presence or nexus.” Because Amazon only maintains a physical presence in a mere handful of states—New York, North Dakota, Kansas, Kentucky and Washington—it is able to avoid collecting state tax on sales in the 45 others. But some of those states, Texas among them, are trying to change that by broadening the definition of “physical presence” to include warehouses owned by subsidiaries.

For states without such warehouses, the second-best route to this easy and unearned cash is through Amazon’s affiliates. Affiliate sites earn their money from Amazon by both advertising its retail products to their own visitors and redirecting them there. Because many of these affiliates have physical establishments across the nation, legislators in six states—California, Minnesota, Hawaii, New Mexico, Illinois and Vermont—are claiming that Amazon’s relationship to those companies renders it again responsible for the collection of state tax.

Amazon, for its part, is disputing these claims, as well it should. These taxes represent large sums—in the case of Texas, $269 million—and although they would not draw directly on the company’s profits, such taxes represent a hindrance to the model that gives Amazon its competitive edge. A product of the online age, Amazon is separated from its clunkier retail competitors by its ability to adapt itself entirely to an increasingly Internet-based market. Part of its competitive advantage is its ability to offer goods to consumers at prices lower than those of older and less efficient institutions. By abridging one of the factors that allows Amazon to do this, the states in question are probably less likely to stimulate economic growth than they are to inhibit it. To implicate an unwilling private institution in the poorly managed affairs of the state, and to do so merely for the sake of budgetary breathing room, seems to me to be antithetical to the ideals upon which this nation supposedly was built and stands.

In light of the proposed measures, Amazon is considering closing its subsidiary warehouses and ending partnerships with its affiliates. In the end, not only will the enforcement of state tax collection discourage innovative competition, it will cost those states that enact it numerous jobs, as well as local business revenue. For some reason, though, proponents of the system remain optimistic. “It’s a time-honored custom not to pay taxes. A lot of people try not to, but it’s up to the state to make sure that there’s tax fairness,” Susan Combs, the Texas comptroller, told The New York Times. And with regards to the collection of state tax by online retailers, Betty Yee of California’s Board of Equalization remarked in the same March 13 New York Times article that, “There seems to be a groundswell of activity by other states that suggest that the time is right.” Never mind that none of the states in question have any tax jurisdiction over Amazon, and I cringe to think that one state’s folly is reason enough to make another’s policy.

In the end, the most disappointing aspect of all this is not the potential for lost jobs, the ignorant undermining of local revenue or the failure of the states in question to promote private enterprise. It is not even the awful rationalizations listed above, which are as flimsy and ineffective as this Band-aid fix itself would prove to be. In the end, the most disappointing aspect of all this is that these states have sought to remedy their situations through disincentives, rather than the opposite. Instead of instituting measures that drive companies like Amazon away from agreements with local businesses, why not make it more glamorous for online retailers to open up shop in your given state, perhaps through tax breaks and other incentives?

Unfortunately, we probably won’t see such measures until state governments stop seeking proverbial bailouts to save their budgets from their suffering economies and start searching for the systemic problems at the root of it all. That is a day that I hope comes soon, but I won’t be holding my breath.

Chris Bassil is a Trinity junior. His column runs every Friday.