In other words, if the proposal, which is part of the Governor's budget passes, New York-based affiliates

would be considered "agents" of companies located outside of New York, thereby creating a "presence" in the state, which would cause the retailers to which they link to be liable for collecting and remitting New York State sales taxes. The proposal would apply to businesses that sell $10,000 in taxable products or more a year to New York state locations.

The AP report says Amazon.com is fighting NY on the issue, and I, as the owner of a New York-based business, hope many other companies join in the fight.

Here's why:
I think the Governor's proposal, should it be passed, will set a precedent that will unreasonably burden and harm New York small businesses and small businesses across the county.

The burden comes in the form of extra costs to buy tax databases and to find and set up an online shopping cart to properly collect sales taxes. There's also a huge time component (huge for the typical small business) associated with reporting and remitting the taxes.

New York's tax system - and some in other states as well- is particularly cumbersome for small businesses because of the requirement to collect and remit taxes at the rate in effect in the taxing jurisdiction (usually the country or city) where you ship the product in the state. There are over 75 such taxing jurisdictions in effect in NY. Furthermore, there is no one tax rate that applies to all the taxing jurisdictions. The state sales tax is 4%, but on top of that, most taxing jurisdictions have their own taxes. So, the total tax that has to be collected on a New York State sale may be 9% or 7 1/8% or 8 3/8 % or some other fraction (usually between 7 and 9%).

Then, quarterly , the taxes have to be remitted and accounted for on the state sales tax return according to the individual taxing jurisdiction. To make that happen, the retailer has to calculate the product cost plus shipping (shipping is taxable in NY) minus the collected sales tax for each city or county to which anything has been shipped. They have to list that amount in one column on the sales tax return, then put the sales tax due on that amount in another column.

To complicate matters a bit, the NY state tax form requires you to round the sales for each taxing jurisdiction to the dollar amount. That's a pain for me, at least, because the program I use to add up the sales from our shopping cart for each region and figure the tax, doesn't round the total. So I have to do that last step manually. Then, there are sales to non-profits that have to be found, and subtracted from the appropriate taxing jurisdiction total before calculating the tax.

If that all sounds like a huge nightmare, it is. Even though I've been able to get much of the process automated at this point, it still takes me or whoever I assign to the task at least half a day to fill out the quarterly tax report for New York. Imagine the time and effort that would be involved if all 50 states decided to put through proposals such as Governor Spitzer's.

As a point of fact, from what I've heard, many New York small businesses that sell online do not properly collect and remit taxes. Instead of collecting at the rate in effect where the products are shipped, they collect and remit based on their own physical location only. I've heard the same thing from businesses in other states with similar tax rules in place.

Setting $10,000 as the jump off point for out-of-state companies with affiliates to have to start collecting state sales taxes doesn't help small businesses very much. $10,000 is not very much. Assuming all the states had similar rules, and a small business sold products equally to each state, a company with sales revenues as low as $500,000 would then be required to collect, file tax returns and remit taxes for all 50 states. Businesses with $500,000 in sales are still pretty small businesses with limited monetary and human resources to deal with burdensome regulations and reporting.

So, politicians out there: before you cry wolf about lost sales taxes on the Internet, before you wave the flag of "unfair competition" (ie, out-of-state companies not collecting sales taxes), realize that your IN-state businesses are increasingly going online to sell products nationwide, to grow their businesses, to grow their local economies and grow the economy of your state. In other words, to bring in money, some of which will find its way into your state coffers.

And Governor Spitzer: Before you push further for precedent-setting legislation, consider what the same legislation would do to the small businesses in your own state if all the other states in the country enacted similar legislation. Remember, the more burdensome and costly it is for small businesses to do business, the slower they will grow and the faster they will fail. More burdens for small businesses ultimately means fewer new jobs created each year, and slow growing or declining local and state economies.

If states are truly hurting from lost sales tax revenues due to online sales, work together to find a way to create a SIMPLE system for collecting and remitting sales taxes. This should be a SINGLE nationwide tax rate and a SINGLE location to which one SIMPLE tax remittance form and payment could be mailed on a quarterly basis. Then, while there might be some minor grumbling, small businesses could more easily collect and remit taxes and get on with the business of running and growing their businesses and their local economies.