Between the two sure things in life — death and taxes — Amazon.com seems determined to eschew at least the latter in many places in this country. Collecting sales tax on Amazon.com was a largely ignored issue because, in most states, the online store has no legal obligation to collect taxes if it does not have a physical presence or "nexus" in one state. This issue gained public attention, however, when a new law in North Carolina started to require online stores like Amazon.com to charge sales tax this year. Amid the publicity and controversy this move engendered it is time for Rhode Islanders to ponder the consequences of a similar law that came into effect here a few months ago.
Sour at the huge pricing advantage local companies lose to online retailers and allured by the prospect of a new source of state revenue in these difficult fiscal years, Rhode Island passed a law a few months ago to force e-retailers that have local business affiliates to assess sales tax on goods sold to Rhode Island residents. Fair as it may sound to Rhode Island businesses, I would clap my hands on this action of state government if it were really helping local businesses and increasing government's revenue. But the new law has so far achieved little of its aim and even hurt Rhode Island business.
Rhode Island was bound to lose her battle with Amazon over taxation from the very beginning. Unlike big states such as New York where marketing affiliates play a vital role of Amazon's sales performance, Rhode Island, with the nation's fourth-smallest state economy, could not really use Amazon's local affiliate program as leverage to pressure Amazon. As a matter of fact, when Amazon promptly cut off all of its marketing affiliates in Rhode Island last summer to avoid charging Rhode Island sales tax, it had little to lose. Consequently, the new law failed to bring any relief to Rhode Island's strapped finance.
From the beginning the most vocal proponents of the new state law have been local retailers who demand a level playing field for big, national e-retailers and honest, tax-paying Rhode Island businesses. So the Amazon tax was supposed to help their situation because the tax could make the Amazon price less competitive and help the local businesses in the process.
Has that happened? Suspending the Amazon affiliate program in Rhode Island has hardly hurt Amazon's allure to Rhode Island consumers, to whom Amazon continues to offer the most competitive price. Had Amazon chosen to keep the affiliate program in place, however, small Rhode Island businesses would continue to face fierce competition from online retailers. Even if Amazon ended up paying taxes in Rhode Island, it still possesses a huge advantage over small local businesses simply due to its overwhelming company size and operational scale. While not charging sales tax affords Amazon a small boost, in the final analysis the economy of size is its decisive advantage. Separately, those local companies that were previously Amazon affiliates would find it harder to survive after suddenly losing what they used to rely on. Companies will collapse and jobs will vanish. The consequence of the new law would substantially hurt the already feeble local businesses and terrible economic performance of the state.
Notwithstanding the long odds small states face in battling big corporations, can the Amazon tax be justified on the moral ground that it restores some measure of tax equitability between customers with different shopping habits? It is certainly true that fairness and equality are indispensable virtues in levying taxes. But taxation is also a powerful tool that serves other purposes such as redistributing wealth, discouraging unwholesome consumption or spurring innovation and production. Because of this, states are usually discriminating in creating and eliminating taxes. Therefore, states may choose to provide tax incentives to businesses to attract investments and stimulate the local economy. Prudent use of taxation is vital to the health of the whole economy. For states like Rhode Island, whose unemployment rate tops 12 percent, the most urgent need is to create jobs by building a more favorable climate for businesses to come and stay instead of chasing elusive tax revenues.
Ultimately, the Internet economy, rapidly growing in size and diversity, probably requires us to think of new ways of coping with it. Whereas Amazon.com began selling CDs and books, its future growth may well depend on sales of digital materials like MP3 music downloads or electronic books delivered directly to Kindles. Economic transactions that take place on the World Wide Web may prove ever more elusive to local authorities' intent on taxing those economic activities. The way the Internet economy can enlarge the treasury of Rhode Island may thus be an indirect one: by encouraging local businesses to work with it. The fiscal health of the state may be restored if the local businesses can enrich themselves through it. On the contrary, the fiscal health of the state may deteriorate if it chooses to shield local businesses from the virtual economy.
Therefore, we should repeal our Amazon tax in Rhode Island. The state government's proclaimed principle of equitable taxation is at the very least misleading when the new law is doing nothing to address the most serious problem of the state's economy. At the same time, the state government misdiagnosed the real situation and put local businesses at stake by shortsightedly attempting to increase tax revenue on the very business it should keep.
Yue Wang '12 is a political science and German studies concentrator from Shanghai. She can be contacted at yue_wang@brown.edu
