Tech companies should do their part and agree to Cuomo’s expanded internet marketplace tax
New York state Gov. Andrew Cuomo’s recent budget proposal slates to expand a contested internet marketplace tax. But despite uproar from the technology community, the expansion of the tax would help accommodate the consumer shift from brick-and-mortar to the internet.
As the proposal, which is commonly referred to the “Amazon Tax” for the types of businesses it targets, stands now, outside marketplace sellers — including third-party sellers on Amazon — are required to collect a sales tax from New York state residents if the seller is also located in New York. Cuomo plans to extend this tax by requiring marketplace providers to collect taxes on sales to New York residents regardless of the seller’s location.
The tech community and pro-business advocates argue the tax, which only affects providers that facilitate annual sales of $100 million, will deter companies from establishing marketplaces in New York. But the odds that a new tech company will create a marketplace and quickly generate $100 million in sales revenue are unlikely. The $100 million floor on the tax enables companies to establish an efficient operational structure that wouldn’t be destabilized by the sales tax.
To understand the implications of the proposal, it’s important to grasp what it means to be an internet marketplace like Amazon, eBay or Etsy. These platforms provide a virtual “marketplace” that allows buyers and sellers to make transactions. Unlike eBay and Etsy, though, Amazon acts as a seller of goods in its own marketplace.
Tax laws in New York provide an unfair advantage to these online retailers over brick-and-mortar establishments. Every brick-and-mortar transaction within the state inevitably happens between a New York buyer and seller, but internet marketplaces have been able to avoid this tax.
This is particularly unwarranted when role of business in society is changing. Society is at an inflection point in which businesses are slowly moving toward a model that aims to maximize stakeholder value rather than stockholder value. For almost every business, stakeholders include the government and the public. For the public to thrive, profit-seeking organizations must pay their fair share of taxes to the public infrastructure that ultimately allows them to exist.
Taxes are intended to benefit, although they can be — and are — misappropriated. But there are two sides to the issue.
In regard to the “Amazon Tax,” techies and business advocates must acknowledge that because consumer shopping habits are changing, the way online purchases are taxed must also change. This issue revolves around a concept known as “nexus.”
The nexus is defined as the temporary or permanent presence of people or property by an organization. In terms of the tax at hand, any company that has a facility or employees within New York state would be considered to have created a nexus — or a physical presence — within the state, even if the company’s marketplace is based on the internet. Because the company has a nexus within the state, the state government could impose taxes on the company.
The nexus issue was addressed in the 1941 Supreme Court case Nelson v. Sears, Roebuck & Co. The case arose when the retail giant Sears distributed a mailing catalog that consumers could purchase goods from. A large amount of Sears’ sales revenue was coming from states the store shipped catalogs to, but the company did not pay sales taxes on these states until the case was decided.
“The nexus of transaction issue for sales tax for Sears-Roebuck has already been settled in the courts, and Sears-Roebuck is dying,” said Lee McKnight, an associate professor in the School of Information Studies at Syracuse University. “The new sales leaders have to pay their fair share.”
The business tides are shifting in favor of companies that inhabit the internet marketplace, and it’s time that these companies pay the sales taxes asked of brick-and-mortar retailers. Cuomo’s proposal to expand the “Amazon Tax,” if approved, would level this playing field, and ensure internet retailers are paying forward with their success.
Daniel Strauss is a sophomore entrepreneurship and finance double major. His column appears weekly. He can be reached at email@example.com and followed on Twitter @DanielStrauss13.
Published on April 4, 2017 at 9:50 pm