Connecticut Joins the eTax Fray
Last week, Connecticut joined a growing chorus of states considering a tax on e-commerce to help shore up budgets. The state’s Joint Finance, Revenue and Bonding Committee held a hearing on Thursday where legislators hinted at eventual support for advancing the bill (HB 5481), which would require e-retailers to collect taxes on residents if they advertise through a third party based in the state.
While a fiscal note for the bill has not yet been provided, state lawmakers around the country seem more entranced with the potential revenue projections on paper that permit them to maintain current spending, rather than the real world implications of affiliate nexus tax laws. As we’ve argued before, e-retailers will simply sever their advertising agreements and avoid paying what is likely an unconstitutional tax increase. This means no actual revenue increase for the state and a decrease of tax revenue from businesses who no longer profit from ad contracts. This has been evidenced in both Rhode Island and North Carolina. A fiscal impact statement on a similar bill in Virginia that, for the first time, highlighted some of these implications helped to kill that measure last month.
What this means in english. Many websites, mine included carry ads for out of state companies, for purposes of this discussion lets say…Texas. If some one from say…Ohio clicks on that ad while on my site and buys an item from that company the company from Texas owes Connecticut sales tax on that item, even though it was bought by a person in Ohio from a Texas company and the item never crossed the Connecticut border.
Historically when confronted by this type of tax, the advertisers simply withdraw the ads from the state attempting collection.
Additionally it is questionable if a tax such as this is constitutional given it can be taken as an attempt to regulate/tax interstate commerce by a state which is unconstitutional. For example, Connecticut can’t levy duties on goods shipped in from New York and other surrounding states.
Except more of this silliness as the Connecticut legislators grapple with the $500 Million deficit and the looming $9 Billion deficits to come. Given their apparent inability to cut even minor amounts from the budget.
