The bill is targeted specifically at businesses that have affiliates. Any business with more than $10,000 in affiliate sales into NY would be required to collect sales tax on NY purchases. The state says

they will gain $50 million in revenue a year from the bill if it's signed. What they fail to consider is the effect such a law will have on small businesses - not only in NY but in all states.

What will happen is that many other states will attempt to enact copy-cat bills, or bills that go further and just say that all sales on the Internet to their residents are taxable.

If and when that should occur, most of the nation's small businesses - the 53% that are home-based and many more that have just a handful of employees - would no longer be able to afford to sell on the Internet.

The reason: they simply would not have the time and capabilities of keeping up with the sales tax regulations in all 50 states and all tax jurisdictions within all the states, let alone dealing with the hassle of filling out tax returns 4 times a year for all 50 states.

Those affected will be pretty much all small businesses. Small businesses today are on the Internet and sell on the Internet even if they have main street shops. The Internet income supplements those shops and helps keep their employees employed.

If small businesses can't compete and go out of business, the states will lose far more than any money they gain in sales tax revenues by trying to get out-of-state businesses to collect sales tax for their state.

If states are really losing all they claim, and feel all products should be taxed regardless of where the company that made the sale is located, what we need, then, is a simple way for small businesses to collect and remit taxes. Having to collect and remit taxes to 50 states individually will never be "simple" or doable by small businesses.

The only alternative that would allow small businesses to be able to sell on the web if they are required to collect tax for all states would be to have a single, flat-rate sales tax for the entire country. That tax could then either be remitted to a central federal authority who would divvy it up among the states according to some formula, OR each small business could remit all the collected sales taxes to their own state.

As of this blog post, the NY bill has not been signed into law. If you'd like to tell NY what you think of this new bill, please send mail to the Governor's office. I particularly urge any of you who are NY small businesses to do so. Please let the legislators in your own state know your feelings on Internet sales taxes and how they would affect your small business if you sell on the Web and would have to collect taxes for all 50 states.