Lawmakers eye 'Amazon tax' on Internet purchases to close budget gap
State lawmakers, desperately trying to close a $3.2 billion budget gap, are eyeing a frequent perk of Internet shopping -- the sales tax-free purchase.
The legislation, passed in New York and Rhode Island and under consideration by California lawmakers, would force Amazon.com and other online retailers that do not collect taxes from Connecticut customers to do so.
Suzanne Staubach, book manager at the University of Connecticut Co-op in Storrs, has been a vocal proponent of the effort. Staubach argued that on-line retailers -- Amazon.com in particular -- are allowed to enjoy an unfair advantage over brick-and-mortar booksellers who have to charge customers Connecticut's 6 percent sales tax.
"And the gap is going to get even wider," Staubach said, referring to Malloy's plan to increase the sales tax to 6.35 percent.
But Fred Carstensen, director of the Connecticut Center for Economic Analysis at UConn, said the effort will further complicate an already convoluted sales tax system and do nothing to jump-start the state's economy.
"I think it's going the wrong direction," he said.
The U.S. Supreme Court has ruled that retailers are only responsible for collecting sales taxes in states where they have a physical presence. In the Internet age, that means the customer is supposed to, but rarely does, report online purchases on their state income tax returns. Some sources estimate Connecticut loses tens of millions of dollars annually.
"It's not a new tax. It's a tax people owe. It's just not collected," Staubach said.
The Finance Committee last year passed the Amazon tax, which argues that Amazon.com must collect sales tax because the Seattle-based company has relationships with numerous in-state affiliates.
"There's two kinds of affiliates -- those who have (an Amazon.com) link on their websites and people actually selling things on the Amazon.com site, like a used book dealer or others selling other things," Staubach said. "Amazon gets a piece of the action and those people get a piece, but neither one is collecting sales tax ... It's their business model."
The state's nonpartisan Office of Fiscal Analysis estimated an Amazon tax could recoup $9.3 million annually, but the bill never came up for a vote in the House of Representatives or the Senate and died at the end of the 2010 session.
Malloy, elected in November, said on the campaign trail he was interested in tackling Internet sales tax losses, but he did not address the matter in the two-year budget he proposed last month. In interviews this week, he and Benjamin Barnes, his director of the Office of Policy and Management, expressed doubts about the legality of an Amazon tax and said they would prefer Congress take the issue up.
Barnes noted Amazon is engaged in a protracted court battle over New York's 2008 law, but that does not deter Daily. "We can't act recklessly, but we can't sit in fear of lawsuits because anyone could try to sue at any time," she said.
Amazon did not return a request for comment, but in testimony submitted last year called the effort unconstitutional and threatened to sever relationships with Connecticut-based affiliates.
"I expect there are dozens, if not hundreds, of local small businesses in Connecticut that have elected to market their products through that means," Barnes said.
"And having Amazon pull the rug out from under them is exactly the last thing we need to do when small businesses are struggling."
"Amazon is trying to make people fearful they're the only game in town when in fact they're not," Cullen said.
Staff Writer Brian Lockhart can be reached at email@example.com.