Watch Out for Snakes! End of Session Is Only 8 Days Away – Internet Sales Tax Almost Snaked Through the Budget Bill 4/09

As the end of the 2009 session nears, the legislative snake season is particularly active.  Now is the time to fine-tune your radar for detecting slithering bill provisions or amendments that have a hidden purpose and attempt to pass undetected until after all the legislators go home.  Such provisions are known in legislative lingo as “snakes.”

For example, at the beginning of the session, the Governor and Democrat legislative leaders stated that there was no appetite for increased taxes this session.  From this pre-session posturing, one might assume that no tax increases or creation of new taxes would ever be considered this session.

That assumption, however, would be wrong.  Last week, the state budget bill almost got out of the Senate Budget and Tax Committee with a brand new tax hidden within the 277-page bill. 

Informally referred to as the “Amazon” tax, the provisions would tax online retailers that have affiliate agreements with an in-state business.  The state of New York passed a similar law last year that was upheld by the New York Supreme court after being challenged by internet companies.

The taxing of internet sales has been the subject of controversial debates over the last decade.  Local merchants and retailers advocate for such a tax on the basis that they are left competing on an un-level playing field when they must charge a 6% tax while internet sales are tax-free.  On the other side, computer professionals and online retailers have an aggressive network of constituents vehemently opposed to internet taxation.

After Republican legislators helped to strip the tax out of the budget bill, Senator Richard S. Madaleno, Jr., D – Montgomery County, introduced a separate bill to create the new tax.  While no longer a snake, Senate Bill 1071 - Sales and Use Tax - Online Sales Presumption could still quickly wind through the legislative process over the next eight days.

Many computer organizations view the affiliated business provision as the “nose under the camel’s tent.”  Once an initial internet taxation statute is established, there are concerns that it would be expanded at subsequent legislative sessions to tax all types of financial transactions over the internet.

For additional information, see Internet Sales Tax Gathers Steam from The Business Gazette – Click Here