AmazonAs states struggle to find more money for their budgets, many of them have looked to the Internet as a new source of funding. Since its inception as a retail outlet, the Internet has largely been governed by the rules of a 1992 Supreme Court Ruling that states that absent a nexus, online retailers and mail-order companies can sell products online without collecting sales tax.

Two issues from this ruling are fueling the fight. First, the thing we all must consider is that the 1992 ruling doesn’t allow for items to be sold tax-free. It only moves the burden of collecting tax from the selling companies and onto residents to report. Second is the definition of nexus: in the original ruling, nexus is defined as a physical location within the state.

The fight over nexus

 

 Today, many new laws are being written to change this definition and require Internet companies to collect sales tax and thus “level the playing field” with local and regional businesses that are required to collect sales tax.

 

The new fight over nexus in many cases is being driven by large retail operations that want to fight powerful eTailers like Amazon and create a fair price comparison online. The argument is being made (and supported in states such as New York, Rhode Island, North Carolina, and Illinois) that “affiliates” representing the website and advertising their wares on it are effectively “sales people” of the partner site, thus giving them nexus and requiring them to collect sales tax.  Although not limited to the online giant’s business, this fight has become known as the Amazon Affiliate Tax due to it being in large part about vendors who sell through Amazon and Amazon refusing to charge sales tax save for in states with physical Amazon locations such as corporate headquarters and fulfillment centers.

Currently, in all cases where a state has passed legislation requiring online sellers to charge sales tax, Amazon and other larger Internet retailers have cancelled their relationships with local affiliates because the eTailers refuse to collect the sales tax. With over 19 states with current laws on the books or in discussion, what does the future of the Internet tax look like and what does it mean in our industry specifically?

What does Internet tax mean for us?

The textbook world has been affected as much as any industry and the fight will only get bigger. Remember that Amazon is the biggest player in this scenario and that books were their foray into online selling and remain a bread-and-butter product. Because of the nature of a textbook rental, any company who rents books online physically owns that book while the users “borrow” it for the semester. The possession of ownership by the renting company gives it physical product within the state and thus a nexus for collecting sales tax. Therefore we see every rental company charging and collecting sales tax. My guess is that, given how Amazon is loathe to collect sales tax, this little fact will keep the online giant away from the rentals game for a while.
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