Amazon lost one battle in New York this week and may be required to collect taxes on goods sold in that state despite the fact that Amazon is not physically present in New York.
We all know where this is going, right? As soon as a country outside the US is willing to host companies at significantly lower-than-US tax rates (eh –Dubai!), US companies will move out of the country. At that point, not only will we not collect state taxes for goods sold, we won’t collect federal taxes either. In the retail space, where shipping is significant, Amazon probably can’t afford to take up shop in Dubai. But if Mexico significantly changed it’s tax code, Amazon in Mexico might work better for everyone.
We need to learn that we can’t legislate everything. Gambling has already moved off shore because of overly restrictive US gaming laws. On-line gambling is still booming, of course, but the US just doesn’t get to partake in the profits.
Outside of retailing, US taxes effect other companies as well. Halliburton Corp relocated to Dubai last year. Dubai currently has no corporate business taxes, the US has 35%. If I were running Exxon (the single largest US revenue source) I’d be considering a Dubai move. Could you move your headquarters to save more than $10B per year?
The great thing about the internet and the commoditization of international communications is that companies can chose to move like never before. Current US federal and state policy to tax everything will cause the smart businesses to move.