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N.Y. Internet Sales Tax a "Ponzi Scheme on the Taxpayer" Says Policy Group

July 28, 2008 By News Report

A new law from the state of New York to impose sales tax on Internet purchases is not only bad for business and the state's economy, but also flies in the face of Supreme Court standards, says a new publication from the Institute for Policy Innovation (IPI).

In "New York: Double Dealing on Retail Taxes," IPI Senior Fellow George Pieler says the bill to collect out-of-state sales tax from online merchants selling goods to New York-based consumers is a "simple Ponzi scheme being played on taxpayers," and the Internet can't be used as a new way to collect sales tax.

The law thumbs its nose at the Supreme Court's Quill decision, says the group in a release, which held that for a state to require sales tax collections from a retailer, that retailer must have some physical connection with the state.

"New York now overrides that legal standard with an act of legislative imagination: Its new online sales tax law is widely interpreted to mean having an advertising or marketing presence in New York is enough to trigger tax collection," writes Pieler.

Furthermore, the Empire State risks driving away businesses both large and small which fear getting caught in the tax squeeze.

If forced to become out-of-state tax collectors, says Pieler, small start-up businesses -- "the very genius of Internet commerce" -- could be chased out of the state.

New York has already seen large companies ceasing to do business within the state, such as in the case of Overstock.com terminating its affiliations with any New York-based companies. As a result, New York companies have lost valuable business, and the state has lost valuable revenues.

"Chasing after every last dollar of theoretically collectible tax always costs more revenue than it gains," writes Pieler.

"If this kind of tax-raising competition gains steam, there won't be any extra tax dollars -- just less economic growth," says Pieler. "Is 2008 really the year to pursue that particular policy line?"

| More

Florida Bill Would Tax Internet Sales

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