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'Amazon Taxes' Fail To Deliver

With the weak economy still depressing tax revenues, state governments are again trying to extract sales taxes from online purchases. But their latest efforts may be backfiring.Several states have passed laws requiring affiliates of online retailers like Amazon (NASDAQ:AMZN - News) to collect and remit sales taxes. "Amazon tax" laws have passed in California, New York, Colorado, Rhode Island, North Carolina, Connecticut and Illinois. Lawmakers have tried in at least 14 other states.But in nearly every case, online retailers have cut ties with their state affiliates. Residents can still buy from the e-tailers, but the affiliates lose business or move."The nation's first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue," according to a National Tax Foundation study last year.Joseph Henchman, the study's author, says that still holds true."Given the poor performance of these taxes at raising revenue, I would be surprised if new enactments didn't run out of steam at some point," he told IBD.Internet sales tax advocates say they're still winning. Online retailers can't exit every state, they argue. "The map is beginning to collapse on them," said Danny Diaz, spokesman for the Alliance for Main Street Fairness, a group organized by retailers including Wal-Mart (NYSE:WMT - News) and Best Buy (NYSE:BBY - News). It has been pushing states to adopt Amazon tax laws.He cites New York's collection of Internet sales taxes — the cash is in escrow pending a court challenge to the law — as proof that getting the revenue is possible.But while legislation is pending in several states, few expect more to pass, at least this year.The Texas statehouse recently sent an Amazon tax bill to Gov. Rick Perry, who's mulling a GOP presidential bid. He vetoed an earlier version. A similar effort recently fizzled in Massachusetts.The Customer's DutyThe debate dates backs to 1992 when the Supreme Court held that retailers cannot be compelled to collect sales taxes if they have no physical presence in the state. It was the online customer's duty, not the seller's, to remit sales taxes to their state. In practice, virtually nobody does.States claim they lose vast tax revenue — California estimates $200 million a year, $83 million from Amazon alone. Brick-and-mortar chains claim their online rivals have an unfair advantage. Web retailers say states are trying to circumvent the court ruling by targeting their affiliates.The nonpartisan National Conference of State Legislatures has long supported extending sales taxes to Web retailers. But it fears that current laws may give states "a false sense that they've done what they had to do," said Neil Osten, head of NCSL's D.C. office.Goodbye, AffiliatesOsten says the laws only cover a sliver of sales, which Amazon and others can easily sidestep by cutting ties with affiliates. With every state that passes "Amazon tax" laws, it gives others that much more of an incentive to be a haven for online retailers' affiliates.So for a decade NCSL and others have sought a uniform national system that would comply with the Supreme Court ruling. So far, 24 states have signed on to the Streamlined Sales Tax Project.NCSL recently sent letters to all state legislative leaders telling them that they must join the streamlining project to get all potential online sales tax revenue.But a national system requires federal legislation. Sen. Dick Durbin, D-Ill., reportedly is backing a version of this, but it doesn't appear to be going anywhere.Online retailers are pushing back in other ways. Amazon endorsed a California ballot initiative to roll back its law. When Texas sent it a $269 million tax bill last fall, it closed a warehouse there and stopped plans to build a new one. It instead opened a distribution center in Arizona — between Texas and California.