Friday, June 21, 2013

Cause and Effect

Perhaps you understand this, even though the governor and the lege don't -- people respond to incentives. More importantly, they respond to disincentives. And how:
In advance of having to collect online state sales tax, Amazon.com said Tuesday that at the end of the month it will sever ties with its Minnesota-based affiliate websites that receive a fee for referring shoppers to the retail giant's online store.

The move comes less than a month after Gov. Mark Dayton signed a law requiring certain online businesses with a physical presence or affiliates in Minnesota to charge sales tax on items it sells to the state's residents. The law takes effect July 1, one day after Amazon's move.
Oops. And yes, the Minnesotans who ran affiliated websites are hurt:
There are about 5,200 affiliates in Minnesota that make money from online advertising, said Rebecca Madigan, executive director of the Performance Marketing Association, a trade group that represents the affiliates.

Those 5,200 don't just work with Amazon.com. They may be affiliates of Cabela's or Blue Nile or other sizable Internet retailers.

The change in Minnesota's state law affects about 1,000 online retailers -- not just Amazon.com -- Madigan said. The 5,200 affiliates in Minnesota generated a total of about $500 million worth of business in 2012 and paid about $35 million in state income tax, she said.

Because of the new online sales tax law, "the state is actually going to lose money" from the affiliates, Madigan said, "because they'll lose that income tax revenue." About three-quarters of the businesses have fewer than four employees.
Perhaps these folks can recoup their livelihoods by driving around the state to tout electronic pulltabs or something.

On the other hand, we're told that Mark Dayton has a 57% approval rating, so perhaps Minnesotans are cool with ham-handed regulatory adventures that cost people jobs.

7 comments:

W.B. Picklesworth said...

I'm curious if Rich or Brian have an explanation for this that makes any sense. Not to put them on the spot, because it's altogether too easy for me to jump to one of two conclusions and neither is charitable.

Mr. D said...

I'm curious if Rich or Brian have an explanation for this that makes any sense.

Perhaps the answer lies in a random CDC report. ;)

Brian said...

What's to explain? I don't disagree with the notion that people change their economic activity in response to changes in tax policy, because that's empirically true.

It's a matter trade offs figuring out whether to raise revenue one way or another. If the state was collecting more in income taxes that they will lose if the businesses go away than it stands to gain in collecting sales taxes online, that's probably not a good policy shift. But I can't really comment on what MN is doing one way or another b/c I don't know enough.

I can tell you that the requirement to pay sales tax on online purchases in WA does not seem to have knocked a dent in online sales. But that may be related to the fact that Amazon (based in WA) can't cut ties with itself.

Mr. D said...

It's a matter trade offs figuring out whether to raise revenue one way or another. If the state was collecting more in income taxes that they will lose if the businesses go away than it stands to gain in collecting sales taxes online, that's probably not a good policy shift.

More than probably. The DFL is running amok here and there will be all manner of epiphanies in the coming year.

R.A. Crankbait said...

Well, technically there has always been a requirement to pay sales tax on on-line purchases, it's just been hard to enforce and extremely easy to ignore. The MN government, in its quest to wring more money out of the system, pushes revenue away. They need a reality check, but then there'd probably be a tax added onto those as well.

Frankly, the Mn lege is a bunch of pikers at this. Argentina is now requiring banks to turn over all credit card transaction records to them so they can assess sales taxes, including higher taxes on goods purchased abroad (which has become the most effective way to "shop" in Argentina's economy).

W.B. Picklesworth said...

Brian, I asked because it's easy to assume that the MN pols were too stupid to realize that they would lose money on the deal. Or, it's easy to assume that they don't really care about money; they just like to exert power and demonize people. I realized that either explanation was pretty mean-spirited so I asked for a different viewpoint.

Gino said...

this is not without precedent.

CA passed the same law per online/amazon/affiliate sales.

amazon responded the exact same way, and filed a lawsuit challenging interstate commerce... etc... blah blah....

within a year, amazon folded after promising to open a distribution hub in CA (i know, its local, and provided MOST of the work that kept my plant operational (as in 4.5 days a week) last holiday season.

the deal they struck: something along the lines of 'we'll drop the suit in exchange for opening a center and collecting sales taxes while not paying a certain level of tax on income.'

everything is negotiable, folks... because every whore has her price.

i'm happy that amazon prevented my job from being cut to three days a week.
i'm not happy that they sold out, but thats to be expected from a business, aint it? to sell?