"The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes." Milton Friedman

Oh, how little did he know. There is no force known to man that can stop a greedy government. The State Government of New York is that greedy government right now. Online retailers across America are struggling to come to terms with a new New York State law that requires them to register and collect taxes on sales into the State if they have affiliates there. Affiliates in this instance are sites that have links to retailers such as Amazon that earn them a small commission on any sales they generate. Lots of places carry these small ads, you see them everywhere even on the most prestigious sites. But if that affiliate happens to be based in New York, this new law kicks in and affects the retailer, whether they themselves are New York-based or not.

And not only that, it carries a sting in the tail too. If a retailer failed to register by the 1st June deadline, New York says it will apply the new law retroactively and pursue them for back-taxes from previous years even though there was never any obligation to have collected such taxes. The legality of retroaction as well as the basis of the new law itself is being challenged in court by Amazon, amongst others. The new law is informally referred to by state officials as "the Amazon law," adding the charge from the company that they are being directly, and unlawfully, singled out. The other response from retailers is to sever all relationships with any affiliates they have in the state which is being done by other big retailers. It means they are able to continue to sell into New York without levying sales tax because they are not covered by the new law.

The likely effects of all this are far-reaching. New York itself is likely to see a fall in tax revenues because so many New York businesses that were paying taxes on the earnings they made from paid referrals are no longer going to be making those earnings. Many are expected to simply go out of business. Consumers will be able to switch to retailers who have no affiliates in the state and who are thus exempt from levying sales tax. For those companies that do register, there will be another layer of bureaucracy to comply with and back-end software for their web sites will have to be upgraded to cope. But the real cost will come if other states follow New York and introduce similar legislation of their own. Then the cost of doing business online will skyrocket as retailers bear the cost of maintaining compliance with differing tax schedules from state to state. Then, of course, there is the international dimension. The European Union has already dealt with this issue and we are already used to paying VAT on our online purchases if the retailer is also EU-based. I have even found myself paying VAT on software I have downloaded from an American vendor. If this nonsense continues, retailers will have to master a plethora of tax regimes in a multiplicity of languages in order to stay in business. The potential of the Internet is being seriously undermined, what scientists originally built, the taxman will take apart.

"When there's a single thief, it's robbery. When there are a thousand thieves, it's taxation." Vanya Cohen