Two decades ago, the Supreme Court modified its sales tax ruling saying that while states could not unilaterally demand out-of-state retailers to collect sales taxes on their behalf, the federal government, authorized to regulate interstate commerce under the Constitution's Commerce Clause, could impose such a solution. This immediately struck fear into the hearts of many mail order (this was pre-internet) retailers, but nothing ever came of it. Congress is loathe to impose new taxes, people back home enjoying the benefit of tax-free catalogue and internet shopping.

 

Ironically, some of the most anti-tax states have been among the first to try to expand sales tax collection. The reason is that such states, to either avoid charging income taxes, or to keep such taxes low, are forced to rely more on sales taxes. As their residents buy more things online, their tax collections suffer. Then, add to that pledges by politicians of "no new taxes," and the dilemma becomes worse. However, they may claim that charging sales tax on internet sales is really enforcing existing tax laws, making this a way to increase tax revenue while still claiming to have added "no new taxes." Perhaps they think people will believe just about anything.

 

In Texas, where anti-tax fervor runs high, and the mantra says that cutting taxes creates jobs, the state sent Amazon a bill for $289 million in back sales taxes and demanded that it collect such taxes going forward. A few years ago, Amazon opened a warehouse in Texas to be able to cut down on shipping distances. Texas argues that this constitutes nexus; Amazon argues that it does not because the warehouse is owned by a separate corporate entity. In the ultimate irony, Amazon announced that it would shut down its Texas warehouse and layoff all of its employees. In this case, certainly, higher taxes is leading to job losses, though it has the support of a political establishment whose governor threatened to secede from the Union because the federal government is too taxing.

 

In Tennessee, the previous Governor stated that such a warehouse would not create a taxing "nexus" in return for Amazon's building two warehouses and creating many new jobs in that state. Now, legislation has been introduced to require Amazon to collect Tennessee sales tax. It seems unlikely to pass, and the new Governor has said he will honor his predecessor's agreement, but it is somewhat surprising that such legislation would even be considered in a conservative state such as Tennessee, and with the almost certain to be followed through threat by Amazon to move away if it is adopted.

 

Several states without Amazon warehouses to attack have gone after Amazon on the basis of affiliate marketers. You may be one, if you post links to Amazon for which you are paid a portion of sales. Under this theory, an affiliate is sort of a part of the company, thereby creating "nexus." Illinois and Arkansas passed such laws, whereupon Amazon canceled its business relationships with their affiliate marketers in those states. So did New York, but Amazon is fighting that one in court rather than severing its New York affiliates. Arkansas may seem an unlikely state for such legislation, but it is home to Wal-Mart, the world's largest retailer, which has to collect sales tax throughout the country, even on its internet sales. It clearly has "nexus" - physical stores within each state. The push for sales tax collection on internet sales comes not only from local governments desperate for more revenue, but from bricks and mortar retailers who find themselves at a competitive disadvantage.

 

Where this will all lead, including whether someday small, home-based internet booksellers will have to collect sales taxes for all states, is unknown. States and physical retailers have reluctantly put up with cataloguers not charging sales taxes over the years, but now with the rapid growth of internet sales, the pressure mounts. Add to that the recession, and desperate lawmakers needing to raise more revenue while still claiming not to be raising taxes, and we have a volatile mix. Local retailers and states may eventually get their way, maybe not. Of one thing you can be certain. If there is change, you, the consumer, will pay more, not less. Changes will only make your taxes go up, not down.