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The tax man’s steady march
South Dakota and Vermont move ahead with online sales taxes.
Managing Editor, B2B E-commerce
Topics: Affiliate marketing, affiliate tax laws, Amazon, Amazon tax, Deb Peters, Dennis Daugaard, distribution center, fulfillment, Mary Peterson, nexus, online sales tax, Overstock, Peter Shumlin, physical presence, Rick Perry, South Dakota, use tax, Vermont
New laws that went into effect this month in South Dakota and Vermont require online retailers with at least $100,000 in annual web sales to notify customers in those states of their responsibility to pay use tax on any online purchases for which a merchant doesn’t collect sales tax.
In South Dakota, companion legislation also specifies that an online retailer must collect sales tax from South Dakota residents if the retailer has a subsidiary in the state to operate distribution centers or for other purposes. Under federal law, states can require retailers to collect sales tax only if the retailers have an in-state physical presence, or “nexus” in legal terms; this includes stores and distribution centers. States with similar laws specifying that subsidiaries constitute a physical presence include Kansas and Oklahoma; similar legislation was recently sent to Texas Gov. Rick Perry, a Republican.
Both pieces of South Dakota’s legislation were signed in March by Gov. Dennis Daugaard, a Republican, but only took effect July 1.
South Dakota legislators also had considered but decided not to submit legislation that would have created nexus requirements when online retailers receive sales leads through affiliate web sites based in the state, according to State Sen. Deb Peters, a Republican who sponsored the two sales tax bills that became law this month. Legislators worried that such a law—commonly referred to as an “Amazon Tax” law and modeled after one passed in New York—could have left the state liable to legal challenges that it could not afford, Peters says. Amazon.com Inc. has challenged New York’s law in court.
In Vermont, Gov. Peter Shumlin, a Democrat, signed an affiliate tax law this month in addition to the legislation requiring retailers to notify consumers about their liability for use taxes. But the state’s affiliate tax law won’t go into effect until 15 other states have enacted a similar law, a trigger the state legislature included in hopes that the law would have a less harmful effect on affiliate businesses within the state, says Mary Peterson, Vermont’s tax commissioner. “Like in other states, the Vermont business community was split between bricks-and-mortar retailers who favored an affiliate law, and online companies who were concerned about the impact it would have on their business model,” she says.
Those opposed to the Vermont law noted that similar levies in other states had led to Amazon.com Inc. and Overstock.com Inc. cutting their ties with affiliates, she adds. Affiliates such as bloggers earn a cut of e-commerce sales that originate from ads or links on affiliate sites.
In addition to New York, six other states have affiliate tax laws—Arkansas, California, Connecticut, Illinois, North Carolina and Rhode Island—and at least seven other states are considering one. Those seven states are Arizona, Hawaii, Massachusetts, Missouri, Minnesota, Tennessee and Texas.