Who’s Watching the States?

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The financial and tax community has been busy watching the bail-out bills and news on Wall Street. Meanwhile, there have been a few developments on the state tax side. Before the meltdown went on high alert, there were a number of issues pending regarding new and pretty sneaky taxes enacted by states.

First, some history. States are broke. They lost a lot of Federal money years ago and now sales are down in the general malaise of the financial markets. Real estate has tanked. No news there. But that also means that real estate values have gone down (lower property tax revenues) and sales are way off (less transfer tax collected).

California requested its own bail-out package. Texas just laid off hundreds of teachers in an attempt to keep the doors open. This is just the beginning.

So, into this climate, New York came up with a new way of determining sales tax. In a move that Amazon says was specifically targetting them, New York determined that effective 6/1/08 if you had affiliates in the state of New York, you would have nexus in the state. And, that meant you had to collect and pay New York sales tax.

Amazon and Overstock both brought suit against New York. But, they did go in compliance with the new law. Basically, they and a lot of other sites, dumped all of their New York affiliates. NewEgg.com decided that the law wasn’t fair and just decided to not pay the tax.

Apparently, New York Senators didn’t think the law was fair either. They have unanimously passed legislation to revoke the new way of determining nexus for sales tax.

In today’s economy, look for states to get even more aggressive. They have to balance their budgets and they don’t have printing press in the basement like the federal government. That means reduced services or it means higher taxes. Period.

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