Lobbying Congress: Amazon Laws in the Lands of Lincoln and Mt. Rushmore
Edward A. Zelinsky
Yeshiva University - Benjamin N. Cardozo School of Law
May 1, 2011
State Tax Notes, Vol. 60, p. 557, 2011
Cardozo Legal Studies Research Paper No. 338
Illinois and South Dakota have now joined New York, Rhode Island, North Carolina, Oklahoma and Colorado in adopting an “Amazon” statute, a state law designed to require online retailers like Amazon and Overstock.com to help enforce use taxes on their electronic sales. Amazon laws are also now pending in other state legislatures.
The Illinois statute is both unconstitutional and futile. That statute contravenes Quill Corp. v. North Dakota and Quill’s construction of the dormant Commerce Clause, as the statute imposes use tax collection responsibilities on internet retailers which lack physical presence in the Land of Lincoln. To the extent the statute proves constitutional in application, it will raise no additional revenue since firms with the constitutionally-required physical presence nexus to Illinois are already obligated to collect Illinois tax on their sales.
South Dakota’s Amazon statute is similarly unconstitutional and futile. The South Dakota act flouts Quill and its physical presence test by imposing use tax notification responsibilities on out-of-state sellers which lack physical presence in the Mount Rushmore State. Moreover, the South Dakota law will raise little, if any, revenue since the notifications required by the law merely exhort purchasers to comply with their use tax obligations without providing any withholding or reporting mechanism for enforcing such compliance.
It is understandable that revenue-challenged states are enacting Amazon laws in these difficult economic times. However, in the controversy over state Amazon laws, more is at stake than the money the states are losing by the de facto tax-free status of much internet commerce. The sales tax status quo is unfair and inefficient. Under that status quo, “pure” internet firms like Amazon sell merchandise effectively tax-free while their traditional, bricks-and-mortar competitors (including the internet arms of those competitors) must collect tax on their sales of the identical merchandise.
State Amazon laws which flout Quill’s physical presence nexus test are not the appropriate remedies for this unacceptable status quo. Rather, the proper (and overdue) solution is federal legislation overturning Quill and its physical presence test. Such legislation would permit the states to require all internet and mail order firms to collect sales tax – whether or not such firms are physically present in the states into which they sell their merchandise. The best rationale at this point for the states’ Amazon laws is that, through such laws, the states are lobbying Congress. Amazon acts signal to Congress the need for federal legislation to repeal Quill and its physical presence requirement. Such acts also provide political cover for federal representatives and senators who are reluctant to appear to be increasing taxes for their constituents. Furthermore, state Amazon laws highlight the ethical problems of the business model defended by Amazon and other pure internet firms, a model which under these online sellers deliberately profit from their roles as enablers of nationwide tax noncompliance.
Number of Pages in PDF File: 26
Keywords: Amazon Law, Quill, dormant commerce clause, physical presence, Nexus, state taxation, use tax, sales taxAccepted Paper Series
Date posted: May 30, 2011
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