New NC Tax Law Would Use Affiliate Programs to Define Physical Presence, Collect Sales Tax

North Carolina is following closely in the footsteps of the state of New York in desiring to collect an internet sales tax. If passed, a new tax provision would use the affiliate status of residents to classify businesses as having a physical presence in the state, therefore requiring the retailers to pay a sales tax.

According to NetChoice, an internet advocacy group, when New York enacted their tax law, over 200 retailers simply stopped their affiliate programs to the state. Amazon.com has already emailed its affiliates warning that their accounts will be terminated if the law goes into effect. This could occur as soon as two weeks.

The irony of course is that affiliates are required to pay taxes on their earnings, so the net effect could potentially be negative for the state.

In a double-whammy for retailers like Amazon, a separate tax provision would tax internet downloads such as music, books, and computer software. It's difficult to imagine voters would be thrilled to pay more than their neighbors in Virginia and South Carolina for things like songs on iTunes.