The Great Sales Tax War

Amazon referendum vs California state sales tax

Amazon’s come up a with a clever way to avoid a new sales tax enacted by California’s governor. If Amazon can collect 504,759 signatures, that law instantly goes away.

At least for a while. If Amazon can gather enough signatures to simply qualify for a “referendum” vote in California’s next election, “the new sales tax law would be suspended,” one of Amazon’s lawyers told a Sacramento newspaper. The next election probably won’t be held until June of 2012, the newspaper reports, giving Amazon almost a year before they’d have to pay the state’s sales tax. One pro-tax group argued it’s proof that Amazon “will say and do anything to maintain an unfair competitive advantage over brick-and-mortar businesses in California.”

Of course when Californians file their state tax returns each year, they’re supposed to calculate how much sales tax they owe for all their online purchases during the last year – and then add that amount in to their total tax due. But California apparently feels this “honor system” isn’t bringing in that money — and neither does a columnist at Slate.com. “Technically, then, if I buy a $1,000 laptop from Amazon, I’m supposed to pay a $90 use tax when I file my taxes to my home state of California at the end of the year,” writes Farhad Manjoo. “I’ve never done this, and I bet you haven’t either – almost nobody does, because states have no good way to enforce use tax collection.”

“The customers need to keep it honest and quit looking at shopping online as a way of avoiding sales tax,” complained one comment at Slate.com. But maybe it’s Amazon’s secret weapon. In a recent yearly report to the Securities Exchange Commission, Amazon implied that their customers simply think they’re getting a better deal than they would at offline stores. “A successful assertion by one or more states . . . that we should collect sales or other taxes on the sale of merchandise or services could . . . decrease our ability to compete with traditional retailers and otherwise harm our business.”

Amazon’s surprising admission was unearthed by the Center on Budget and Policy Priorities, a non-profit think tank which also took a close look at some comments from Amazon’s CEO. In 2008, Jeff Bezos told Amazon’s shareholders “The problem is that there are . . . tens of thousands of separate sales tax jurisdictions, it’s not just 50 – one for each state. It’s horrendously complicated. . . The rules to obey in all jurisdictions are overly complex, and as a result, we have an undue burden on us.” There’s just one problem with that argument, according to the Center on Budget and Policy Priorities: “the company already calculates and collects sales tax in at least 44 of the 45 states that levy them for independent companies that sell their merchandise on Amazon’s website!”

Two weeks ago I wrote that Amazon’s stated their preferred solution is a uniform tax for all 50 states — but blogger Ezra Klein sent me an e-mail arguing that that’s a common delaying tactic. “[M]aybe they would prefer that. But it’s not a reason they shouldn’t have to pay the taxes assessed on all other businesses in that state. Saying you’d like to improve the income tax doesn’t mean you don’t have to pay it in the meantime.”

The state sales tax is supported by a group called “the Alliance for Main Street Fairness,” and Tuesday their spokesperson argued Californians should be worried by “The lengths Amazon will go to evade collecting sales taxes – even spending tens of millions of dollars on a ballot referendum.” Their web site argues the group only wants to eliminate a massive “anti-small business online sales tax loophole…that puts small brick-and-mortar businesses at a significant disadvantage…” And over in Berkeley California, Congresswoman Nancy Skinner tried to offer her best analogy to a reporter at Bloomberg News. “If I purchase from Nordstrom online, I pay a sales tax.

“Why should Amazon operate under a different set of rules?”

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