Are Amazon.com’s Days Of Tax-Free Selling Numbered?

Experts are speculating momentum is building to finally force companies like Amazon to pay local tax rates like regular mom and pop shops would. What do you think, should the retail giant be allowed to continue avoiding local sales taxes?

Forbes.com reports:

Hasn’t Amazon successfully fended off pesky state tax collectors for 16 glorious years? Yes, but the battle has entered a new stage as Amazon builds warehouse/fulfillment centers in more locations, states grow hungrier for revenue, and a rising sales tax rate (it now averages 9.64% nationwide) puts retailers who do collect tax at an ever bigger disadvantage.

The back story is well known: In 1992, the U.S. Supreme Court ruled in Quill v. North Dakota, that only sellers with a physical presence (“nexus” in taxspeak) in a state are required to collect that state’s sales taxes. Just shipping into a state by say, FedEx or UPS, isn’t enough to establish nexus. Consumers still owe “use” (meaning sales) tax to their states, but few bother to pay.

Bezos made the most of Quill. He based his business in Seattle, instead of the Silicon Valley, to avoid having to charge California customers sales tax. He located his first East Coast distribution center in sales tax free Delaware. Some big bricks and mortar retailers, including Barnes & Noble, Borders and Wal-Mart, tried to avoid collecting taxes online, too, by setting up separate operations to sell on the Internet. But after enduring state audits and lawsuits—and also after recognizing the advantage of integrating their online and store operations–the bricks & mortar merchants started collecting taxes online.

Today, Amazon is not only the biggest retailer on the web, but also the only one of the top 10 (for 2009 as ranked by InternetRetailer) which doesn’t collect sales tax from most buyers. Dell, No. 3 on the list, finally began collecting sales taxes in 2006. (More history, here.) Once they started collecting taxes on-line, the traditional retailers joined with the states in lobbying Congress to require Internet tax collection. (There’s not much chance of that passing this year, says Grant Thornton partner Jamie Yesnowitz.)

Meanwhile, the states have tried a variety of attacks. Most notably, in 2008, New York passed a law which presumes Internet sellers like Amazon.com and Overstock.com have nexus if they have marketing deals with “affiliate” sellers who are physically present in New York. Amazon is challenging the law in court (so far, unsuccessfully), but it now collects sales taxes on shipments to New York. It also collects for shipments to Washington, as well as North Dakota, Kansas, and Kentucky—states where it set up physical operations early on. (My colleague, Janeace Slifka, calculates that 87% of Americans live in a state that charges a sales tax Amazon doesn’t collect.)

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Why it's Time to Tax Internet Sales

From PC World.com:

Buying an $800 couch or television via the tax-free Internet can be nearly $80 cheaper than a purchase made in a high-sales-tax city like San Francisco -- such a deal. But the free ride is costing states and cities billions of dollars a year, and it damages local businesses that find it hard to compete.

The Main Street Fairness Act, introduced this month by Rep. Bill Delahunt (D-Mass.), would end the exemption for big Web retailers like Amazon.com and eBay that fear the change would be a body blow to their business. The Web sales tax issue has been debated and litigated for years, and it is hardly a popular cause, but with state and local governments deeply in debt, the chance to add a massive revenue stream may outweigh the political risks.

The seven-term Delahunt will not be running for re-election, but it would be unfair to see the timing as opportunistic. Delahunt sponsored a similar bill in 2008. I don't enjoy paying taxes any more than the next guy, but Delahunt was right then and he's right now. The Internet is no longer a baby that needs to be cosseted and protected from the real world, and favoring Internet business over brick-and-mortar ones via a tax exemption is not fair.

The budget hole provides the necessary opening for equal taxation

If you want government services, someone has to pay for them. The amount of money governments are losing due to the exemption is staggering. Uncollected use taxes (a use tax is pretty much the equivalent of a sales tax) for the six-year period ending in 2012 will range from $52 billion to $56 billion nationally, according to a 2009 study by economists at the University of Tennessee. New York City alone will lose at least $390.6 million in 2012; Chicago $229 million, they predict.

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From CBSNews.com:

Jeremy Bray received an e-mail message this morning with an unwelcome surprise: Amazon.com told him it had canceled its affiliate program, which provides small payments for referring customers, for everyone in the state of Colorado.

The reason? A state law, which Democratic Gov. Bill Ritter signed last week, slaps onerous new restrictions on large out-of-state sellers like Amazon, which said it has no choice but to end its marketing program in response.

Bray, a blogger who has lived in Pueblo, Colo., for more than 20 years, told CNET on Monday that he's now trying to "bring as much attention to the issue as possible in hopes of getting Colorado to repeal" the new law.

Colorado is not alone. Fifteen other states have considered or are considering enacting laws targeting Amazon and other e-commerce companies that typically do not charge sales tax for shipments sent outside their home state, according to a report released Monday. Four states including Colorado have already enacted them.

"I see this as a trend moving along - a lot of states are considering doing it," said Joseph Henchman, director of state projects at the non-partisan Tax Foundation in Washington, D.C., which published the report. But, Henchman says, the laws "won't solve short-term budget problems, they signal business-unfriendliness, and they're probably unconstitutional."

Lawmakers Want to tax Amazon Sales in California

According to LA Times, lawmakers in my home state of California are hoping to bring in over $150 per year in new revenue by levying sales taxes on purchases made online from businesses without a physical presence in the state. The company that would be hit hardest by this new law would be Amazon, who has had a competitive advantage over retail stores in California for years thanks to a 1992 Supreme Court decision.

Consumers here are required to pay sales tax on the goods they purchase at Amazon but almost never do, because the state has no mechanism for tracking Amazon purchases and collecting the money.

Now California is one of several cash-strapped states exploring a novel legal strategy that could force Amazon and others like it, including Overstock.com, to start collecting tax from their customers. New York launched the effort with a law that took effect in 2008. North Carolina and Rhode Island have passed similar laws; other proposals have advanced in the statehouses of Virginia, Illinois, Colorado and Hawaii.

The Democrats who control California's Legislature plan to put their own bid on the governor's desk this month in hopes of reaping up to $150 million annually for state and local coffers. The revenue would make only a tiny dent in the state's $20-billion deficit, but supporters say every dollar counts in tight times, and there's a principle at stake.

Continued at LA Times…

Amazon and Blue Nile Cut Off Affiliates in More States Over Taxes

From Internet Retailer.com:

Jewelry e-retailer Blue Nile Inc. today joined Amazon.com Inc. in severing its referrals from Rhode Island online affiliates because of legislation that would require the collection of sales tax. The two retailers recently took similar action in North Carolina and Amazon today cut off its affiliates in Hawaii.

“This is a result of the tax collection legislation passed by the Rhode Island state legislature, and expected to become law,” Blue Nile said in a letter sent today to its Rhode Island affiliates. “Blue Nile regrets the need to take this action. As the U.S. Supreme Court’s 1992 Quill decision makes clear, the proposed bill is unconstitutional as it requires sellers with no physical presence in the state to collect sales tax on sales to buyers in that state.”

Blue Nile made a similar announcement to its online affiliates in North Carolina on Saturday, June 27.

Amazon also sent similar messages to its Rhode Island affiliates yesterday, to its North Carolina affiliates on Friday and to its Hawaii affiliates today. “This is a direct result of the unconstitutional tax collection scheme passed by the Rhode Island General Assembly with a veto-proof majority,” Amazon said in the message yesterday. “As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 29. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date. The governor could sign the bill—or have his veto overridden—any day now.”

Both Blue Nile and Amazon said they would pay their affiliates for all referral fees earned until the recent terminations. Amazon notes that its referral fees can run as high as 15% of the value of a sale transaction, and that it will make final payments to affiliates by Sept. 1.