#3. Affiliate Nexus Bills

 

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

 

Illinois – HB 3659, Arizona – HB 2551, New Mexico – SB 95, Hawaii – HB 1183, California – AB 153, Vermont – HB 143, Maine – LD 469, Massachusetts – HB 1731, and Texas – HB 1317

 

States across the country are mistakenly turning to advertising nexus taxes to force out-of-state retailers to collect sales tax from in-state consumers.

 

Illinois recently passed a law (HB 3659), while Arizona (HB 2551), New Mexico (SB 95), Hawaii (HB 1183), California (AB 153), Vermont (HB 143), Maine (LD 469), Massachusetts (HB 1731), and Texas (HB 1317) are considering bills declaring that Internet advertising is equivalent to having sales agents in their states.  Minnesota’s proposed budget 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.

 

So what is so iAWFUL?

 

A report by the New Mexico legislature explains best why advertising nexus taxes are so awful:

  • If New Mexico passes its advertising nexus law, it “will likely have negative effects on New Mexico business’s retail sales, and therefore, will have a negative impact on general fund revenues.”
  • “[I]t is likely that major sellers will discontinue all affiliate relationships in New Mexico in response to the imposition of tax on internet sales transactions.”
  • “With expectations of small positive impact on gross receipts revenues from those sellers who continue their affiliate relationships and the potential negative effects resulting from the dissolution of relationships between New Mexico business and major internet retailers, Senate Bill 95 is expected to have no effect on general fund revenues.”
  • The bill “will likely have negative effects on New Mexico business’s retail sales.”[1]

 

These laws present all-pain and no-gain to states; they don’t increase revenue and they damage in-state businesses.  This is exactly what has happened in a handful of states that have passed such laws.

 

Two years ago Rhode Island passed its advertising nexus law, saw zero new revenue and heard plans of a 500-employee online marketer leaving the state.  Now, Rhode Island seeks to repeal the law (HB 5115).

 

New York passed the first advertiser nexus law and is presently defending it against constitutional challenges by remote retailers. Until that case is resolved, this law is an all-pain, no-gain loser for the state.

 

States should take other steps to increase their tax revenue, but should avoid nexus taxes that only harm the state and its businesses.

Previous NetChoice Writings on This Issue

 


[1]Emphasis added.

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