Raising and Reforming Sales and Excise Taxes

Similar to last year, a number of states are pursuing sales and excise tax increases.  Some are more targeted, such as Wyoming taxing wind energy, while others are drilling down on particular products or on Internet retailers.

Candy and Soda Taxes:  This year marked a great interest in pursuing taxes on candy and soda as both Colorado and Washington State raised taxes on the products.  New York Gov. David Paterson has led an effort both this year and last to assess higher taxes on sugary beverages while reducing taxes on diet drinks.  New York City Mayor Michael Bloomberg, who supports the effort, stated, the "proposal will discourage consumption of high-calorie beverages while simultaneously making lower-calorie beverages more affordable, which will help lead to major gains in public health ."

Cigarettes and Alcohol Taxes: So far this year, South Carolina, Hawaii New Mexico, Utah, and Washington state raised cigarette taxes.  In 2009, sixteen states enacted cigarette tax increases, while six others raised alcohol taxes.

"Amazon Tax":  States lose billions every year due to the failure to collect sales taxes that are legally due on purchases made over the Internet.  This hurts not only state budgets but local retailers and local job creation, as purchases shift from main street to out-of-state retailers.

In 2008, New York became the first state to require online retailers to collect sales tax on purchases to customers in the state.  The state changed its tax code to mandate that an out-of-state retailer with more than $10,000 a year in sales generated through sales affiliates in the state has nexus and must collect sales and local taxes.  After the bill's passage, Amazon.com immediately sued, but lost the case.  The state expects to generate $47 million from the "Amazon tax." 

Rhode Island and North Carolina followed New York's lead and passed the Amazon tax last year.  This year, New Mexico Rep. Eleanor Chavez sponsored HB 50 to extend the state's gross receipts tax to online sales.  In February, Colorado enacted HB1193 to apply the sales tax on out-of-state retailers.  Showing a petty vindictiveness, Amazon canceled all business relationships with affiliates in the state in retaliation, even though there is "no connection between the affiliate program and the new law."