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State Tax Revenue & the Amazon Effect

States desperately seeking new streams of income are turning to the Internet—and online retailer Amazon in particular—as a potential source of revenue.

However, if states think there’s any way they can close yawning budget gaps by taxing online purchases through Amazon, says KPMG state and local tax partner Ann Holley, the answer is an “emphatic no.”

While the states in question face billions in potential budget gaps, the amount of money a state could actually take in from taxing online purchases would be miniscule. In fact, North Carolina estimated the revenue gained from such a tax would be a paltry $13 million.

The bigger concern is that if states actually tax online purchases in certain states, Amazon could pull its affiliates out of those states, costing not only jobs, but income tax collections, as well.

Rhode Island is a great example, according to Holley. A taxpayer advocacy group said the state has not seen any increased revenue from taxing Amazon purchases. In fact, one trade group said the state had actually seen a decrease in revenue from the income tax hit.