FOR IMMEDIATE RELEASE
Representative Blake Filippi Wants to Abolish “Amazon Tax”
Filippi Says Current Tax is Hurting Rhode Island Technology Businesses
STATE HOUSE -- On Tuesday, May 3, 2016 Representative Blake Filippi (I-District 36 Block Island, Charlestown, South Kingstown, Westerly) will present a bill (H-7230) to the House Finance Committee to abolish a little known tax rule that is hurting business opportunities in Rhode Island.
The rule, dubbed the Amazon Tax, was established in 2009 and altered the definition of an in-state retailer to include out-of-state retailers that have local “click through” affiliates. These local affiliates include individuals that drive web traffic to large online retailers as well as those that use an online retailer as a platform to sell their goods. The designation of these local affiliates as creating a sufficient nexus between the out-of-state retailer and Rhode Island enabled the state to assess and collect sales taxes on all goods sent into the state --even if a purchase is unrelated to the local affiliate marketer.
In anticipation of legal challenges and the additional cost of goods due to the collection of R.I. sales taxes, many large online retailers, including Amazon.com and Overstock.com, severed all ties with Rhode Island affiliates.
“The Amazon Tax essentially uses a small local affiliate as a hook to tax everything an out-of-state retailer ships into Rhode Island. It is no wonder why the reaction of these large retailers was decisive and destructive to our local affiliates. In an effort to get more tax revenue, Rhode Island effectively cut off every business in the state from selling-through or working with some of the largest online retailers in the nation. It has hindered the exact web-based economy that we need to foment, and the State's tax receipts from the Amazon Tax have been minimal,” remarked Filippi.
During last year’s hearing on similar legislation introduced by Rep. Filippi, local CPA and business consultant, Norman LeBlanc, testified that the Amazon Tax is contrary to the State’s effort to attract high-tech companies. Leblanc testified that “high tech businesses can locate anywhere – and they’re choosing to locate elsewhere.” That is because the Amazon Tax is one of those issues that causes attorneys to advise out-of-state technology companies to stay away because Rhode Island is a “threat to them . . . even more damaging is when a potential new Rhode Island company is advised by their customs and vendors that if they move to Rhode Island, they will no longer do business with them – it is too much of a threat.” Mr. LeBlanc concluded that the Amazon Tax “is the type of blemish that grows our image” as unfriendly to business.
As a real world of example of Mr. LeBlanc’s cautionary testimony, Rep. Filippi points to the story of Cayla Mackey -- a young entrepreneur whose plan to establish a high-growth Rhode Island start-up was stymied by the Amazon Tax. In a letter to Filippi, Mackey stated:
"I am an experienced and successful serial entrepreneur. I have started two successful ventures and am working on my third. I have been on the cover of the Nashville Business Journal twice, and am the youngest named member of Nashville's ‘30 Under 30.’ I recently relocated to Rhode Island because my business partner is attending graduate school at the Rhode Island School of Design. I took my current business venture, Unicorn Goods, with me. The website is www.unicorngoods.com. Unicorn Goods is the Internet's largest online catalog of vegan products. We list 1000+ items from 200+ retailers. A visitor to our site finds an item they like, clicks "available here" and is directed to a website where they can purchase the product. We collect a percentage of these referred sales as an affiliate marketer.
Effective affiliate relationships with retailers is the backbone of our business model, and the primary way we make money. We are a high growth tech company serving a rapidly growing market. There is no other company doing what we do the way we do it and we are expecting to define a market for ourselves and redefine an industry.
I am a member of Social Enterprise Greenhouse and have a growing team. I was planning to formally incorporate in Rhode Island using the L3C filing (also called the "Social Enterprise LLC"). Rhode Island is only one of 11 states in the US to offer the L3C filing, and I was excited to take advantage of this to grow my social business in Rhode Island. I was alerted this morning to legislation that makes it impossible for me to incorporate in Rhode Island. As an affiliate marketing company based in Rhode Island, we would not be able to establish functional affiliate relationships with retailers because of something passed in 2009 called ‘the Amazon tax.’
To say that this new is disappointing would be an understatement. We are now looking at incorporating in Delaware. I had really hoped to incorporate in Rhode Island. Were this law not in effect, we would have incorporated in Rhode Island, based our business in Rhode Island, and grown our high growth tech company in Rhode Island."
Filippi concluded that Ms. Mackey’s story is just “one of many that has resulted in our state loosing businesses that employ young professionals – and forgoing the tax revenues that go along with this key piece of a robust tech economy. I am happy to introduce this legislation to abolish an ineffective tax that places our businesses at a distinct disadvantage, and encourage all my fellow legislators to support H-7230.”