Last month the Minnesota government passed an Internet sales tax law. Although proponents of this law claimed it would raise revenue (isn’t funny how statists always consider other people’s money the state’s revenue), those of us who opposed it pointed out that it wasn’t enforceable. The State of Minnesota can only enforce its laws against entities physically located here. This being the case, Internet merchants not wanting to pay Minnesota sales taxes need only relocate to another state.
In response to the passage of Minnesota’s Internet sales tax law Amazon has decided to terminate it’s Associates Program with Minnesotans, effectively ending its physical presence in this state:
We are writing from the Amazon Associates Program to notify you that your Associates account will be closed and your Amazon Services LLC Associates Program Operating Agreement will be terminated effective June 30, 2013. This is a direct result of the unconstitutional Minnesota state tax collection legislation passed by the state legislature and signed by Governor Dayton on May 23, 2013, with an effective date of July 1, 2013. As a result, we will no longer pay any advertising fees for customers referred to an Amazon Site after June 30 nor will we accept new applications for the Associates Program from Minnesota residents.
Libertarians and other advocates of small or no government are jumping for joy because this move demonstrates that tax increases drive businesses away… or does it? If you continue reading their notice you’ll see that avoiding taxes, a noble cause, isn’t Amazon’s goal:
We thank you for being part of the Amazon Associates Program, and look forward to re-opening our program when Congress passes the Marketplace Fairness Act.
Herein lies Amazon’s goals, they want to drum up support for the Marketplace Fairness Act. The Marketplace Fairness Act promises to level the playing field between online merchants and traditional brick-and-mortar merchants. In reality, the law is blatent protectionism, which is why Amazon is in support of it.
The text of the law says any online retailer that has over $1 million in gross online sales must pay sales taxes in all 50 states. Since Amazon is an online retailer and has well over $1 million in gross online sales it would stand to reason that it would oppose this law, right? Not exactly. Amazon is a massive company that rakes in tremendous amounts of cash. It can easily absorb the costs associated with complying with 50 different tax codes. However, its smaller competitors may not be able to.
$1 million in gross online sales isn’t that much when you figure in the expenses of paying employees, maintaining a website, building and shipping product, etc. A company that made $1 million in gross online sales may not be turning much of a, if any, profit. Even if it is turning a profit that money is unlikely to be enough to ensure compliance with 50 different tax laws, which may require hiring 50 different tax lawyers. Whenever a large company supports a piece of legislation always ask yourself how that legislation will harm its competitors, because that’s usually its end goal.
Amazon wants the Marketplace Fairness Act to pass because it would reduce the number of competitors. In order to get the bill to pass Amazon is sending members of its Minnesota Associates Program an ultimatum: support the Marketplace Fairness Act or never again enjoy the benefits of being an Amazon Associate.
In the end, Minnesota’s Internet sales tax law was a lose-lose-lose for everybody besides Amazon. The State of Minnesota won’t gain any additional funds since online retailers can easily relocate to another state. Members of Amazon’s Associates Program are no longer able to rake in that program’s benefits because Amazon wants to use them as political pawns to crush its competitors. Finally, everybody in the United States loses because Amazon’s exploitation of Minnesota’s Internet sales tax law will likely create more supporters for the Marketplace Fairness Act, which would increase the amount of taxes we have to pay.