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By the time the next holiday shopping season rolls around Connecticut consumers will be paying a sales tax on their Amazon.com purchases. While paying a tax is never anything to celebrate, it is fair and it is the law.
In 2011 Connecticut passed a law to try to collect Internet sales taxes, with Amazon the big fish it was trying to hook. The law focuses on small retailers that pay commissions to Internet sellers, such as Amazon, to direct online customers to their products. Internet firms with more than $2,000 in sales generated through Connecticut affiliates are judged by the new law as having a physical presence in the state and so must collect a sales tax.
To avoid the requirement, Amazon responded by severing ties with affiliates in Connecticut. That had to hurt the mega-Internet company, even if just a little. The Performance Marketing Association calculates about 3,000 Connecticut companies affiliated with online retailers make $236 million from those relationships annually, notes The Connecticut Mirror.
Under the agreement announced Monday by Gov. Dannel P. Malloy, Amazon will start collecting the sales tax and remitting it to Connecticut on Nov. 1. In return, Amazon can renew its relationship with Connecticut businesses. The governor estimates Amazon will generate $15 million in sales tax revenues annually.
The deal is good news for state companies selling through Amazon and for fair competition. The failure of Internet retailers to collect sales taxes has given them an unfair advantage in competing with traditional brick-and-mortar stores. Even when not charged by an online company, by law state consumers should, by way of state income tax filings, be paying a sales tax for products purchased on the Internet. Very few do.
The state still has to hunt down other retail sellers refusing to collect the tax. As noted by the governor Monday, the best solution would be for Congress to pass the Marketplace Fairness Act requiring Internet retailers to collect sales taxes mandated by state laws. But Republicans in Congress have blocked the bill for years, their anti-tax fervor trumping traditional conservative values of states' rights and fair competition.
Amazon and the governor also announced plans by the Internet powerhouse to invest $50 million to open a distribution center in Connecticut within the next couple of years. Gov. Malloy said there is no connection between the tax deal and Amazon's development plans - just a big coincidence, apparently.
Amazon has not picked a location for the center. Southeastern Connecticut officials should take notice, and start lobbying for it.