In continued news of people responding to tax competition, online retail giant Amazon.com Inc. has announced it is scrapping deals in Arkansas and Connecticut due to new legislation requiring new online retail taxes.
As the Wall Street Journal reported:
Amazon.com Inc. severed its affiliations with websites in Connecticut and Arkansas because of new state taxes on online purchases, retaliating against a measure that it opposed as “unconstitutional and counterproductive.”
The withdrawals by the retail giant means that web retailers and other marketers in the state will no longer receive a portion of the sales for funneling customers to Amazon, which has taken the same action in four other states that approved similar taxes.
The so-called “Amazon tax” was included in budget legislation signed last month by Connecticut Democratic Gov. Dannel P. Malloy, and the state expected to raise $9.4 million by collecting sales tax from online transactions for the first time. It requires Internet retailers to collect tax on sales generated through website affiliates in Connecticut.
In Arkansas, lawmakers passed a bill earlier this year to require out-of-state online retailers like Amazon to collect sales tax from customers if their annual sales in the state exceed $10,000. Amazon opposed changing the law, and this week, it notified Arkansas associates by email that it would terminate their contracts on July 24.
This is a great example of greedy governments learning the lesson that raising tax rates does not always mean greater tax revenue. This situation is going to have a similar effect as moving to the far end of the Laffer Curve: raising tax rates past a certain point will make it unprofitable to do business and companies will leave the market. By attempting to raise revenue through online retailer taxes these states will now likely lose revenue from the lost jobs and contracts that Amazon would have created within their borders.
