#5. Online Advertising as Nexus for Sales Taxes

What’s so AWFUL? An unconstitutional expansion of sales tax burdens to out-of-state businesses.

Colorado (SB 1193), Illinois (SB 3353), Maryland (SB 824), New Mexico (HB 50), Virginia (SB 660) and Vermont (HB 661) have introduced bills declaring that some forms of Internet advertising are equivalent to having sales agents in their states.  California’s Senate Budget and Fiscal Committee passed a budget report that includes an advertising nexus tax. All these states want to force out-of-state advertisers to collect and remit sales tax on sales to their residents. Mississippi introduced a bill, but it has already died in committee.

Advocates believe the measures will raise tax revenue, but that’s a false hope, as seen in states that enacted this law in 2009. Moreover, fewer advertising dollars would flow to in-state websites, costing income and jobs.

Last year, North Carolina and Rhode Island passed their laws—but neither reports any new revenue.  Soon after the bills were passed, a 500-employee online marketer announced plans to leave North Carolina and Rhode Island legislators introduced a bill to repeal its advertising nexus law.

Online companies and content providers are still experimenting with new models for advertising and distribution. State laws that use Internet advertising as a proxy for an in-state sales representative will stunt the growth of new business models and distort the evolution of Internet marketing.

NetChoice writings on this topic:

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What’s wrong? Privacy legislation that sets information collection defaults will harm the growth of online commerce.