Fallout from ‘Amazon tax’ suggests it’s a bad move

Critics of Gov. Dannel P. Malloy’s budget and its array of increased taxes had fuel added to their fire this week, when dozens of online retailers announced that they would pull advertising dollars out of the Constitution State in retaliation for a new tax on online retailers known as the “Amazon tax.”Prior to this ill-advised measure, retailers who did not have a physical presence in Connecticut did not have to collect taxes for online sales. But now, under Gov. Malloy’s new budget, which goes into effect July 1, retailers who have affiliate marketers in Connecticut (locally based websites that offer links to their products) will be taxed on sales made here in the state.Critics of the plan from both the right and left have noted that the Amazon tax has failed to show positive results in the other states where it has been implemented. New York, Rhode Island, Illinois, North Carolina and Alaska are all feeling the pain of lost revenue as online retailers pull advertising out of those states. Overstock.com CEO Patrick Byrne called the tax unconstitutional this week and said his company would cease its relationships with Connecticut retailers, but would reward loyal customers. “So we have severed relationships with all of our affiliates in Connecticut, and have taken the money we would normally pay those affiliates and are using it to reward our best customers in those states,” Byrne said in a written statement. “Any customer in Connecticut who has spent more than $300 in the past year will receive a free Club O membership (normally priced at $20) and their membership account will come preloaded with an additional $10 balance.”So, while some consumers will get a treat, Connecticut retailers who normally receive a percentage commission on sales will lose money. And Connecticut won’t collect a dime from Overstock or the dozens of other websites that have followed suit. By the end of the day Tuesday, HSN, 1800 PetMeds, Build.com, LightingDirect.com, Lamps Plus, Glyde, Casual Living, Cookware.com and OfficeFurniture.com were among the websites to announce they were going the way of Overstock.States enacting the Amazon tax have yet to prove if it is even legal, let alone fiscally prudent, so it’s hard to understand why the Malloy administration would jump so quickly into such a business-unfriendly proposition. Sen. Andrew Roraback (R-30) noted this week that the governor’s own tax commissioner, Kevin Sullivan, cautioned lawmakers that the Internet tax was not workable and would likely result in a revenue loss.Faced with court challenges, angry online retailers, disappointed consumers and an ultimate loss in revenue, state leaders will hopefully find a way to abandon the Amazon tax and come up with a better way to show Connecticut is “open for business.”

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