DMA Politically Direct (Spring 2008): DMA Opposes New York, Florida Tax Efforts

May 16, 2008 — New York Governor David Paterson (D-NY) in April signed into law the state’s fiscal year 2008-09 budget that included a provision — initiated last fall by Eliot Spitzer — requiring out-of-state Internet retailers to collect sales tax on deliveries made into New York, based solely on a link to a marketer’s website. This proposal is estimated to raise $50 million in revenue each year.

In testimony submitted both to the New York State Senate Committee on Finance and State Assembly Committee on Ways and Means, DMA expressed strong opposition to the proposal because of its probable violation of the US Supreme Court’s 1992 Quill v. North Dakota decision.

In a letter published in The Wall Street Journal (May 3), DMA President & CEO John A. Greco, Jr. said DMA believed the new law was “an unabashed attempt by [the state] to expand the reach of its tax system across state borders to businesses which have no physical presence in the state.” Greco said DMA continues to “strongly oppose the measure and is currently exploring ways to fight it.”

In response to the new Empire State law, Amazon.com has filed a lawsuit challenging the state’s authority to require Amazon and similar companies to collect tax when they do not have a physical presence in the state.

The total reach of this new tax collection authority may not be known until enforcement of this law begins on June 1, 2008. DMA will be closely following the law’s impact and will keep members informed.

In a more positive tax policy decision, Florida’s Taxation and Budget Reform Commission rescinded the decision it made earlier this year to place on the November 2008 ballot an amendment to the state’s constitution that would allow the state to join the Streamlined Sales and Use Tax Agreement (SSUTA).

DMA strongly urged—in testimony in January and again in April before the Florida Taxation and Budget Reform Commission—the state against joining the SSUTA compact. DMA said it failed to genuinely simplify sales tax collection.

In fact, DMA pointed out, the SSUTA agreement would maintain the current “crazy quilt” of 7,600 varying sales tax rates across the country, subject interstate sellers to audit liability among the various states, and mandate differing sales tax rates for the same item based simply on whether the item was sold across state lines or intrastate.

The news out of the Sunshine State isn’t all good, however. The Florida Taxation and Budget Reform Commission recently mandated a proposal be placed on the November ballot calling for a reduction in property taxes. To offset lost revenues, the state’s sales tax rate would be increased one cent, and the legislature would be required to review all current business tax exemptions.

Accordingly, if the ballot initiative were to pass, all services, including advertising, could potentially be subject to sales tax. DMA strongly opposes this “tax trade” proposal and has been working with the various advertising trade associations and other groups to defeat this initiative.

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