‘Amazon tax’ has not generated revenue

DISCONNECT: Owen Johnson, managing partner of Betaspring, runs a site called 
Connect Providence, which was previously an Amazon affiliate. /
DISCONNECT: Owen Johnson, managing partner of Betaspring, runs a site called Connect Providence, which was previously an Amazon affiliate. /

Six months after Amazon.com Inc. cut off its local marketing affiliates to protest a new state law aimed at forcing e-retailers to charge sales tax, Rhode Island and North Carolina remain the only two states whose residents are barred from the affiliate program. Nevertheless, a powerful state legislator says the law is here to stay.
Since last year, Amazon has been locked in a legal battle with New York’s government over whether the company must collect sales taxes in states where it has local marketing affiliates. But unlike in New York, where Amazon is collecting taxes as the case moves through the courts, it dropped its affiliates here when Rhode Island passed a similar law.
Though many in the local tech community are frustrated, House Finance Committee Chairman Steven M. Costantino, D-Providence, said there was no effort under way to repeal the “Amazon tax,” which he cast as a matter of fairness.
“It’s a matter of having a level playing field for the small businesses on Main Street which have to collect a 7 percent sales tax for their customers, versus a mail-order business like Amazon that avoids collecting the same tax,” Costantino said. “Furthermore, when companies like Amazon don’t collect taxes, the burden is shifted to other taxpayers.”
Costantino also pointed out that Netflix Inc. and other e-commerce sites already collect Rhode Island sales tax. (In fact, Amazon does, too – but only for other companies such as Macy’s that have brick-and-mortar stores but sell products on Amazon.com.)
Others in state government disagree. General Treasurer Frank T. Caprio, who is running for governor, said: “The affiliate tax has hurt Rhode Island businesses and stifled their growth, as they’ve been shut out of some of the world’s largest marketplaces, and [it] should be repealed immediately.”
The revenue at stake from uncollected online and mail-order purchases is significant, though not game-changing. In April, researchers at the University of Tennessee estimated Rhode Island’s government would forego a total of $132.7 million in sales tax revenue from 2007 through 2012. The average annual loss is equal to 2.5 percent of the state’s total sales tax collections in 2007. But the state law has done nothing to increase tax revenue. Officials at the R.I. Department of Revenue “do not believe that there has been any sales tax collected as a result of the Amazon legislation,” said Paul L. Dion, who heads the department’s revenue-analysis office.
For a company like Amazon, there is little risk in pulling out of Rhode Island, which has the nation’s fourth-smallest state economy, said Lee Hower, principal at Point Judith Capital, a Providence-based venture capital firm. But affiliate marketing is a “very common” component of many Web startups’ business plans.
“Amazon doesn’t care,” Hower said. “The only thing that Amazon has changed because of this policy is they’ve stopped paying companies in the state. … The reality is we haven’t gotten the revenue or the policy benefits out of this, but we do have this downside.”
Angus Davis, a tech entrepreneur who lives in Providence, said the law should be called an “affiliate tax” since it has no impact on Amazon. “It’s really slamming the door shut at the borders of Rhode Island to any kind of online advertising industry,” he said.
Lydia Walshin, who lives in Scituate, depended on Amazon affiliate marketing to monetize her cooking blog, ThePerfectPantry.com. After Amazon cut off its affiliates, Walshin moved her operations to Massachusetts, where she also has a home and a bank account, and Amazon had her back up and running within 24 hours.
Owen Johnson, on the other hand, was earning “small, but growing income” from his personal blog and a site he runs called Connect Providence as an affiliate before Amazon ended the program here. Now he is wondering whether to move his business out of state. “You’re creating an environment of uncertainty in which to do business,” he said. •

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