Amazon.com and other online retailers have severed their Connecticut business ties, rather than accede to a new state law that will require any online company with a physical presence in the state to collect the sales tax. But now, it seems, the taxman cannot be so easily dodged.
"They can run, but they cannot hide," said Kevin B. Sullivan, the commissioner of revenue services. "Amazon, Overstock and others have had more than enough business presence in Connecticut before the new remote sellers legislation passed this session."
Patterned after legislation enacted in New York three years ago and now written into law in seven states, the measure is designed to close a loophole in state tax rules opened by a 1992 U.S. Supreme Court decision and the subsequent growth in online commerce. The high court essentially held that states cannot force businesses to collect sales taxes unless they have a physical presence within that state.
Connecticut's solution hinges on sales affiliates, local companies that receive a small commission for redirecting customers to a retailer's web site. Any firm with more than $2,000 in annual sales generated through its Connecticut affiliates effectively has a "nexus" or physical presence in the state, according to the statute, and therefore must collect and report sales tax.
"They all knew it was coming," said Rep. Patricia M. Widlitz, D-Guilford, co-chairwoman of the tax-writing Finance, Revenue and Bonding Committee. "It wasn't a surprise."
Originally built into the new biennial budget legislation, which was enacted May 4, the new rule was scheduled to start July 1, the first day of the next fiscal year. But after dozens of online retailers, including O.Co, formerly known as Overstock.com, announced they would sever ties with their Connecticut affiliates, lawmakers included a provision in an omnibus budget policy bill adopted June 7 -- one day before the regular legislative session's adjournment -- that reset the rule implementation date retroactive to May 4.
It was unclear Tuesday how that might affect sales tax revenue forecasts involving online transactions.
But what had been a two-month adjustment period was cut short by nearly four weeks. And last Friday another online giant, Amazon.com, gave word it was dropping its Connecticut affiliates.
"It was quite catastrophic when they adopted it" back in May, but "now these retailers feel trapped," said Rebecca Madigan, executive director of the southern California-based Performance Marketing Association, which represents Amazon, other online giants such as Google, Yahoo and eBay, as well as a growing affiliate network.
"They are clearly trying in Connecticut to capture everyone who sells online," she said. "They are really trying to shut down e-commerce." The nearly 3,000 Connecticut firms affiliated with online retailers made $236 million last year from those relationships and paid about $7 million in state income taxes, Madigan added.
But both Widlitz and Sullivan said the legislation only is designed to enforce existing law.
A common misconception among Connecticut consumers, lawmakers say, is that Internet transactions are exempt from sales tax. If retailers don't collect and remit the tax back to Revenue Services, consumers are supposed to report and pay it themselves through their annual state income tax filing.
But while the sales tax raised just under $3.1 billion last fiscal year, less than $8.3 million of that was paid through income tax filings.
In all, states lose a total of $7 billion a year in sales tax revenue, according to an analysis by the Center on Budget and Policy Priorities, a nonprofit fiscal and public policy group based in Washington, D.C.
Advocates of the bill contend neighborhood book stores and other small businesses, which must force their customers to pay sales tax, simply cannot compete with Amazon.com and other major online retailers.
Widlitz added that the change in effective date was made only to correct an error that should have been fixed one month ago. "We should have put it into effect with the passage of the new budget," she said. "Everyone certainly knew for months that it was our intention to pursue this."
But Sen. Andrew W. Roraback of Goshen, ranking GOP senator on the finance panel, said lawmakers also have heard warnings for months that an estimated 3,000 Connecticut affiliates of online retailers stood to lose a significant portion of their own revenue.
And while Roraback added he believes Congress needs to develop a cohesive national policy on online sales to protect both Internet retailers and more traditional stores, his biggest fear right now is that industry reaction to the policy change ultimately could translate into lost private-sector jobs.
"It's been made pretty clear what the online retailers would do," Roraback said, adding that the last-minute switch in effective dates had to leave a bad taste in remote sellers' mouths.
"Who can blame them for a mass exodus," he said. "We are yelling fire in a crowded theater, and the exits are reflecting that."
Thomas M. Caporaso, president of the Clarus Marketing Group of Middletown, said his small, online marketing business employs about 25 workers -- eight of which were added in recent months thanks in part to affiliate relationships with Amazon, Overstock and dozens of other online retailers.
Plans to add more workers have to be put on hold, he said, adding his chief task now is to re-evaluate the companies earnings and try retain the staff he has.
"We're going to have to see what effect all of this is going to have on our revenue," Caporaso said, adding he fears more online firms will sever ties here in the coming months. "The pace has definitely picked up."
Catalogue and telephone anyone???
My question is will state sales tax be collected for online purchases by Connecticut state residents from Amazon and Ebay? This has not been answered. IMHO this law is totally unconstitutional.
I now purchase what I need from on line retailers and private sellers to avoid the state sales tax. My philosophy is that the more money the state gets the more they spend. I've never been proven different.
I don't need to give the state anymore of my hard earned money than I absolutely have to. Yes I purchase gas in Connecticut only because it
Read More@Art: If you purchase from online retailers and they do not collect sales tax from you, as the story explains, the law requires you to report those purchases on your state income tax and pay the "use tax." You may not like this law, but if you do not do this, you are breaking the law. If everyone obeyed the law and just paid their use tax, then this would not be an issue at all and we would not need this new law.
"fulldisclosure" - I agree with your implied statement 100%. I don't see any way that any court would consider online ordering and purchasing to be any different than "mail-order" transactions.
Regardless, the amount of State tax revenue from Amazon and Overstock-linked retailers who're located in CT is really miniscule. And the fact of the matter is that Amazon and the like now sell products at *such* a discount, they'd STILL be a better bargain for consumers *even if* a federal law was passed *requiring* them to collect each state's sales tax. There's just NO way local retailers - especially independent
Read MoreI think that eventually Amazon will have to give in and start collecting sales tax in CT and other states that are demanding it (NY, CA, TX, etc).
Of course, consumers won't be happy about paying sales tax, and many are already discovering ways to avoid doing so. For example, many consumers in California and New York use a package forwarding service from Oregon (where there is no state sales tax) to shop tax-free online, even though their states collect sales tax on online purchases. (You just order with an Oregon address, then have your packages forwarded to your own
Read MoreObviously the Dems do not care about the survival of businesses. The voters should vote them out.
By the way, jschmidt27, the sales tax was signed into law by a republican governor. As for Weicker, of republican backround, if a progressive state income tax had been proposed, it would had been possible to eliminate the sales tax. Nobody wants to get rid of the sales tax, especially the republicans.
Advocates of the bill say they are worried about local businesses but that's a bunch of garbage. It's all about the tax revenues that the money grubbers running this State want to wring out of everyone until they squeeze the last nickel out of us.
Even if the State were to enforce sales tax on Amazon and others I will still buy things from them because they sell for less than the local stores. Sorry, but it's about my pocketbook. Why do people shop at the local WalMart and not the upscale stores? At least those
Read MoreWell, Danny and the Dems, this time with Kenny as guest artist, have played another tune and only the members of this whack-job band understand it. Let's see... who has created the most new jobs? CT over the last 30 years or Amazon over the last 5? Oh gosh... it's Amazon! What a surprise! I think those that pontificate about creating new jobs should be following the lead of those that have proven, proven, success at the task instead of trying to shoot them down just because your continued failures look that much worse because
Read More@MR.
I love your slanted view of history and your 100% alliance to the Democratic Party. Look at your history book. Yes the Sales Tax was enacted at a modest percentage of 2 or 3% in the early 50's. The purpose of the tax was to help veterans adjust after WWII. It was suppose to be abolished in a year or two. The Democrats took power and the tax was never repealed.
I would never label Lowell Weicker as a Republican. The only reason why he associated himself with the Republican Party was so
Read MoreTHe Democrat legislature approved the taxes for the last 20 years. Weicker was not a Republican by any stretch of the imagination. Progressive taxation makes the economy progreesively worse. Taxes drive business and people out. Lower corporate taxes, electric and gas taxes and you'll attract business. The unions should have had much great cuts applied to them and we should have not raised taxes. THere is enough waste in government that Malloy didn't even looks at. SUch using overtime in pensions, cars and drivers for officials, non performing committees for every ethnic group,non smoking programs, too many state workers. THe
Read MoreTHe Democrat legislature approved the taxes for the last 20 years. Weicker was not a Republican by any stretch of the imagination. Progressive taxation makes the economy progreesively worse. Taxes drive business and people out. Lower corporate taxes, electric and gas taxes and you'll attract business. The unions should have had much great cuts applied to them and we should have not raised taxes. THere is enough waste in government that Malloy didn't even looks at. SUch using overtime in pensions, cars and drivers for officials, non performing committees for every ethnic group,non smoking programs, too many state workers. THe
Read MoreHow much does that package-forwarding service charge?
Will anyone in the Media demand Commissioner Sullivan and Governor Malloy make public their state tax returns and/or OP-186 for the last 5 years to demonstrate they have paid sales taxes on purchases they (and/or their spouses if filing jointly) have made on-line from retailers such as Amazon, overstock, etc.?
How about the same tax info disclosure from those who voted in support of the measure now driving Amazon and others to severe business relationships with CT businesses?
If they want to claim the tax is nothing new that Connecticut tax payers should be recording voluntarily anyway then should we
Read MoreHmmmmmm
So, since our legislature can create a new meaning to the word "physical," which Webster defines "as having a material existence," heck, why not just go ahead and charge them a imputed property tax too while we're at it. Each $10,000 in online sales equals 100 sqft. You know, since we are making this up as we go along.....
...or maybe our elected leaders can manage our fiscal affairs like responsible adults?
I'd like to see CTMirror.org and other news publications report on the fact the Connecticut is one of the WORST state when ranked on total taxes (sales, income, property, etc).
If Affiliates create Nexus because the websites they own earn commission, then so should every website that has an Advertisement on it, even CTMirror.org, Facebook, Google, etc. Advertising is getting confused with Sales here, Affiliate earn money from Advertising just like those big name sites. The word Affiliate has been changed to waste more money.
All the big Affiliates are leaving Connecticut for New Hampshire, Delaware, and the other no
Read More"If the state does not change its demographic trajectory, it faces a bleak future."
A Connecticut Center for Economic Analysis report, "Recovery Stirring, But Will Connecticut be Too Old to Compete?"
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