N.C. click-through revenue disappoints

RALEIGH — Click-through taxes — sometimes called “Amazon taxes” — don’t appear to be bringing in nearly the revenue that was expected to budget-strapped state governments and in some cases are resulting in less revenue, a new report says.

“My thesis is that it’s not bringing in anything close to what they expected,” said Joseph Henchman, tax counsel for the Tax Foundation, a Washington think tank which is commonly known for revealing each year’s Tax Freedom Day.

A handful of states, including North Carolina, have recently adopted such tax-collection methods in an effort to get out-of-state retail companies to collect sales taxes on purchases made from within their state.

For years, North Carolina and other states have required companies that have a physical presence, such as a store, in the state to collect sales taxes on online purchases. That practice is known as collecting taxes if a company has a “nexus” in the state.

Last year, the General Assembly approved expanding that practice to include companies that had affiliates in North Carolina. For example, a company such as Amazon.com would be required to collect sales taxes from North Carolina purchases if the customer clicked on an Amazon button on a webpage of a North Carolina business.

A revenue line item in the state budget estimated that the added practice would bring in $11.8 million in additional revenue this fiscal year, which ends June 30, and $24.1 million next fiscal year. The new click-through tax collection law just took effect in North Carolina on Jan. 1.

Beth Stevenson, a spokeswoman with the N.C. Department of Revenue, said it’s too early to tell how much additional revenue is actually being brought in.

“There isn’t any way to estimate how much the only e-commerce (tax collection) has generated so far,” Stevenson said.

Henchman also suggested that the new system could actually reduce income tax collections in some states.

“It seems to be what’s happening in Rhode Island,” Henchman said.

The reason for the reduction in income tax revenues is that Amazon.com and some other online retailers have ended their affiliate partnerships with businesses in such states rather than collect the taxes.

Stevenson said that there was no way such an estimate could be made at this time on the Amazon tax’s effect on North Carolina income tax revenues.

Sen. David Hoyle, D-Gaston, who co-chairs the Senate Finance Committee, said it would be difficult to determine whether income tax collections were down because of the actions taken by Amazon.com and other online retailers or because of the recession.

“Everybody’s sales are down,” Hoyle said.

Hoyle said the tax is not new. It’s been around for decades.

“Under the law, clearly written, if you purchase an item out of state and bring into the state, and the sales tax has not been collected, you duly owe it,” Hoyle said.

He notes that there is a line on the state income tax form that allows for North Carolina taxpayers to report such out-of-state purchases. He said the state brings in about $4 million to $5 million a year “from people who honestly report it.”

Then there’s the question of fairness, Hoyle said.

“You go to Barnes & Noble, you have to pay taxes; you go to Amazon, you don’t,” Hoyle said. “Is that fair?”

Henchman’s answer to that argument is that a local store would basically charge one tax rate on purchases made there. Online retailers, large and small, would have to “track more than 8,000 sales tax rates and bases,” he said. “This flies in the face of the argument that Amazon taxes level the playing field between brick-and-mortar and Internet-based businesses.”

Henchman also questioned the constitutionality of states trying to require out-of-state businesses to collect state taxes.

The Constitution gives Congress, not the states, the authority to regulate commerce among the states, he said.

“The main purpose is to prevent states from infringing on interstate commerce,” Henchman said.

Barry Smith can be reached at barrysmith@freedom.com.