Even as job consequences caused Texas”™ governor to veto a bill that would have applied sales tax to purchases from Amazon and other dot-coms, the Connecticut General Assembly supported a similar bill in the closing days of the 2011 session that could have a similar impact here.
The bill would require remote sellers that have no physical presence in Connecticut to collect sales tax on applicable Connecticut sales. Overstock.com Inc. promptly vowed to end those relationships, with others possibly following suit as predicted by several Internet business owners this spring who testified against the bill.
“It”™s been said that if we lose relationships with a company like Overstock or Amazon, we could simply work with other online retailers ”“ they”™d be more than happy to fill their space,” said Kevin Mardorf, who runs a dotcom affiliate in New Canaan. “I guess you could say we”™re kind of like ”¦ NFL free agents ”¦ We need to entertain offers and play for every team so we could offer our visitors choices.”
In support of the measure is the Connecticut Retail Merchants Association, who say the tax-free treatment of products sold online represents an unfair competitive disadvantage for many of its members.
The Connecticut Office of Fiscal Analysis estimated the bill would add less than $10 million in the fiscal year that starts this July ”“ if a small amount, nevertheless not an insignificant figure. OFA couched its estimates by saying those figures assume that dot-coms will not end their business relationships with local affiliates and that the figure could come down significantly if that is the case.
The Camarillo, Calif.-based Performance Marketing Association Inc. says the expected backlash by dot-coms could essentially create a zero-sum game for the state of Connecticut. PMA”™s executive director testified this spring in Hartford that some 2,800 product websites in Connecticut earned $194 million in 2009, the most recent year for which data was available, while paying $5.8 million in income tax along with other economic benefits such as payroll and other taxes.
“The bill states that if an out-of-state retailer places ads on websites owned by Connecticut citizens, those retailers have nexus and must collect sales tax from purchases made by state residents,” said Rebecca Madigan, executive director of the PMA. “However, this bill has a major flaw: It provides an easy out for retailers to avoid collecting sales tax. Those retailers will simply stop advertising on Connecticut websites and advertise on competitors”™ sites in other states. We know this for a fact because that”™s exactly what happened when similar laws passed in New York, North Carolina and Rhode Island.”
Making a similar prediction was Tom Caporaso, president of Clarus Marketing Group, a Middletown company that provides online consumer loyalty programs not dissimilar to those offered by Norwalk-based Webloyalty.com.
“The playbook for the retailers is very clear ”“ they simply terminate their relationships with affiliates like us,” Caporaso said. “Amazon, Overstock and many others have done this. This is not a guess ”“ this is a guarantee.
“I guess my question is, why would you want to put a new media technology firm in harm”™s way with this bill?” Caporaso added. “I would think that we are exactly the type of company that you would want to recruit to Connecticut.”
