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Definition[]

The Amazon Tax refers to a state statute that considers the use of an affiliate network[1] by an online retailer in determining that online retailer’s presence in the state for sales tax purposes.

Overview[]

Ordinarily, an online retailer that has no physical presence within the state that sells to a state's resident is not required to collect sales tax, which generally leads to more competitive pricing.[2] Under these state laws, online retailers that use affiliate networks within the state, like Amazon.com, would be considered to have a presence in the state and be required to collect sales tax from state residents for any products purchased online, even without the use of an affiliate.

In response to such legislation Colorado and New York, Amazon.com and other retailers have ceased affiliate network activities in those states, rather than be required to collect sales tax.

References[]

  1. These affiliates advertise the online retailer's sites by posting ads and links to the retailer on their websites in exchange for a portion of the revenue generated by sales made as a result of those ads/links.
  2. Note that, technically, consumers in this situation are still required to self-report a "use tax," which is equal to the amount of sales tax, but that reporting rarely takes place.

See also[]

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