Tag: sales tax

Could Amazon Add a New Sales Tax?

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Amazon always enjoys a blizzard of online sales during “Black Friday” — but they don’t collect any state sales tax. And yet surprisingly, Amazon’s just issued a press release saying they support a new law which creates a national system allowing states to collect their usual taxes from purchases made online. “It’s a win-win resolution,” an Amazon vice president said in the press release, promising that Amazon “will work with Congress, retailers, and the states to get this bi-partisan legislation passed.”

Five Republican Senators and five Democrats have co-sponsored the “Marketplace Fairness Act,” and even anti-tax conservative groups are supporting the legislation, reports the Los Angeles Times, because it includes a state-by-state implementation rather than a single national solution. (“The law would allow states to become part of a group of 24 states that have adopted a streamlined system to reduce the complications for retailers in figuring out a customer’s exact sales tax.”) And states could even impose their own unique taxes if they meet some basic requirements about simplicity. “I think we’ve finally found the sweet spot,” said one Senator from Illinois.

Small businesses are exempt if their annual sales are less than $500,000, and the Senators seem confident that the new legislation will be passed. “If I were president of an online retailer…I would look at this week in Washington, D.C.,” said a Senator for Tennesse, “and I’d make my plans to start collecting sales taxes wherever I sold things in the United States.” It’s good news for state governments, which could receive a total of $23 billion in new tax revenue, according to one Senator. “It’s about closing a tax loophole,” said another lawmaker. “It’s about stopping the subsidization of some businesses over others.”

So why is Amazon excited about paying state sales taxes? If you ask Amazon’s Vice President of Global Public Policy, he’d tell you that they’ll still remain competitive on price. (“As analysts have noted, Amazon offers customers the best prices with or without sales tax,” he said in a statement.) But that hints at a larger loophole that Amazon may be able to exploit. The reason they offer the best prices is their massive size, which allows them to pressure book publishers (and other retailers) for the cheapest possible discounts — and they may be able to exert the same pressure on the individual states who want to tax them.

I think it’s the Kindle that may actually have been responsible for Amazon’s change of heart. Amazon says they’re now building “millions more” of the new Kindle Fire tablets than they’d expected, and they’ll presumably end up offering unlimited two-day shipping (and cheaper one-day shipping) to hundreds of thousands of new customers. And the best way to reduce those shipping costs is to have fulfillment centers in lots of different states. But this obviously makes it harder for Amazon to avoid state sales taxes by then claiming, as they have in the past, that Amazon doesn’t have a “physical presence” in a state. Maybe Amazon’s just going to rely on a new tactic: the ability to pressure those states individually. Instead of a national sales tax, these new taxes will only be imposed at the individual discretion of each separate state legislature.

And that’s an area where multi-billion dollar companies like Amazon can still exert a lot of pressure…

The Great Sales Tax War

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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?”