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Rhode Island is Huge

Although small in physical size, Rhode Island now has, and will continue to have a tremendous impact on everyone in the Internet marketing industry. The Rhode Island Internet tax has taken effect, joining New York which passed similar legislation last year. By redefining the definition of retailer, they are taking a firm and tough stance. While the Governors in Hawaii, Minnesota and California backed down for a variety of reasons, Rhode Island is leading the way for other states. While the number of affiliates affected may be small in number, the repercussions will be felt by everyone in the affiliate industry. Judging by my emails this morning the actions of Rhode Island is a big wake up call for many.

Rhode Island was a critical State. While we were lucky in other states and received what will be at best a temporary reprieve with last minute actions by Governors, Rhode Island will mark the turning point. Last year we tried to stress that Internet tax legislation will steam roll, every state legislator and Governor had their eyes on NY; some were quiet but all were watching. In January, with Amazon and Overstock losing their initial court actions we saw several states put more energy into legislation. Rumors in almost every state with a sales and use tax point to possible legislation. Rhode Island will be a large part of the story.

Last year, the NY Internet tax took effect on June 1. As reported here and as part of the testimony presented in committee meetings on Hawaii, Connecticut and other states, NY collected $42-46 million from thirty or so out of state merchants during the last part of 2008. This year, the first full year of NY Internet sales tax, the anticipation is for $62 million. Whether or not you believe the figures almost doesn’t matter, this is the testimony being provided to legislative committees around the US.  This in itself fills many politicians with glee. It’s a way to help plug holes in budgets. Since they can say “it’s not a new tax because consumers owe it anyway, it’s just the method of collecting that is changing”,  legislators can remain on record as opposing new taxes. Legislators that support bills to redefine or modernize the definition of retailer will be seen as supporting the small brick and mortar stores in their state. Of course the impact on the “silent” small business person (that’s us!) are not considered to a significant degree.

Up until this year, many considered Internet sales tax as a NY issue, a NY problem. Internet sales tax was just NY being NY, the big tough bully state picking on out of state merchants. Losing several thousand affiliates wasn’t a big deal. Besides, everyone was watching the court action thinking “that will save us”. Well, court action did not save us and though being appealed, any resolution is probably years away.

It is no longer just a big bully state like NY that is seeking to impose the tax. Now it’s a little state with a big voice standing up to larger than life merchants saying collect the tax!

So far this year we missed Internet sales tax in Minnesota and California by the skin of our teeth. (Keeping a close eye on California as legislation is again pending in it’s fourth version.) Hawaii was very close too, with the Governor vetoing on the day the law was to take effect. (Still watching to be sure legislators don’t override the veto). 

North Carolina has Internet sales tax in it’s pending budget.  Opinions vary, but passage appears likely. Many other states have considered or are considering new nexus laws – Maryland, Connecticut, Tennessee,  Texas, Illinois…  With all of this pending or proposed legislation Rhode Island will have huge impact. It is not just one state any more, it is two, maybe soon it will be three or more. Next year expect many more to follow in the steps of Rhode Island.

I have long said that NY was just the beginning and that it would steam roll. Each successive state passing legislation gives incredible power to the new movement. It’s an exponential increase. Rhode Island seems to have been a loud wake up call for many. Seems like while it was possible to ignore the big state of New York, Rhode Island is impossible to ignore.

Now, more than ever we need to be proactive. Now more than ever, affiliates need to prepare. Merchants too, will need to exercise sound judgement as they decide their own course of action.

{ 4 comments… add one }

  • Anne Holland July 8, 2009, 2:47 pm

    Speaking as a merchant and an affiliate as well as a Rhode Island resident, I can see both sides. Our state has over 12% unemployment as of May 2009. We’re also losing thousands of residents per year as they “move” to other places either for jobs or for tax evasion (the number of Florida plates you see on cars around here is astonishing.) Also, two of our biggest sources of revenue — summer tourism and summer home construction — are down dramatically this year.

    We’re a tiny state, but we have high infrastructure costs due to aging infrastructure (much of RI was built before West Coast states existed), lots and lots of bridges over our scenic waters, and winter storm clean up. We also have legacy public servant (police, teachers, etc) union contracts that crush us with a pension burden that remind me of Detroit.

    I don’t like higher taxes, and don’t even always appreciate what the money is spent on. But I do understand why RI legislators did this. Sorry.

  • Melanie July 8, 2009, 2:55 pm

    Thanks Anne. Very tough times for all states and very difficult decisions need to be made. I would hope for a Federal answer so that the playing field is leveled between states. Rhode Island affiliates will adjust, just like NY affiliates did. It just takes a little time.

    I can also understand why legislators had to take action, in NY and RI. When you read research on the amount of sales tax that is lost it all makes sense.

    I am sure it was much harder for Rhode Island to take a stance like this. Took a lot of strength so that leads me to believe Rhode Island, and it’s residents (including affiliates), will be just fine.

  • RetroHousewife July 10, 2009, 4:38 am

    NY collected $62 Million? Any idea on how much income tax was lost due to the drop in affiliate earnings? $62 Million????!!!!

    That’s nothing! And btw, Melanie and Anne have their heads up somewhere – raising taxes during an economic downturn will cause an even bigger economic downturn. It’s not strength it took to pass that law in Rhode Island, it was flat out stupidity.

    Here in California, our legislators are sitting around wondering why their revenues declined after they passed the biggest tax increase in history.

    Ponder this: What is 100% of 0? Use that to fix your stupid bridges in RI.

  • George August 27, 2009, 11:48 pm

    I believe what this states are doing is unconstitutional. Congress regulates interstate commerce not the states. This country was founded on No Taxation Without Representation. If someone is expected to pay taxes in Rhode Island, Rhode Island has the obligation to send voter registration information to ALL of the tax payers of Rhode Island. I do not live, vote, use police services or use the aging infrastructure. If the Rhode Island legislators cannot solve the state’s problems with internal measures, vote them out of office. It seems tax evasion wouldn’t be that difficult to resolve if there were the political will. How many of Rhode Island representatives have Florida plates?

    We need to start a campaign writing our Congressional members informing them the states are usurping Congressional powers and we do not support Internet taxes in any form. This is not a business issue. Businesses simply collect taxes and turn them over to the states and local government. Where does this stop? Will we all one day pay income taxes to each of the states that have income taxes? Nexus laws are unconstitutional.

    Write your Congressman to stop this high jacking of constitutional powers. Congress is empowered to stop states from taking these actions with legislation. We do not have to wait for the courts.

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