Amazon’s Brawl with States Hurting Local Communities
http://www.offthechartsblog.org/amazons-brawl-with-states-hurting-local-communities/
Posted by: Michael Mazerov
Posted in: Budgets, State Budget and Tax, Taxes
As ABC reports today, Amazon.com is fighting North Carolina’s attempt to collect sales taxes that residents owe on their online purchases. This is one of several ongoing fights between the company and states trying to collect the roughly $8.6 billion they’re owed each year from Internet sales. With states laying off thousands of teachers and taking other painful steps to close huge budget shortfalls, Amazon’s actions are coming at the expense of the public interest.
The specific issues vary from state to state, as I’ll discuss in future posts. But here are a few basic facts to keep in mind:
- States aren’t trying to create a new tax, just collect one that’s already due. Sales taxes are already legally due on online sales if the same item would be taxable in a local store. But the Supreme Court has ruled that states can’t force online retailers to collect the taxes unless they have a “physical presence” in the state, and some retailers — the biggest of which is Amazon — don’t collect them.States have been looking for ways to address this problem. Last week a new law and regulation took effect in Colorado requiring Internet retailers to tell their customers that they likely owe state sales tax on online purchases even if the retailer didn’t charge them for it. When Colorado enacted the law in March, Amazon retaliated by telling its small business partners there that it would immediately stop doing business with them unless the state repealed it.
Amazon is also challenging a New York law that requires the company to charge that state’s sales tax. (Under the new law, since Amazon pays independent New York websites to solicit business for Amazon in the state, it effectively does have a “physical presence” in New York.) An appeals court decision is expected in the next few weeks.
- Amazon claims that it can’t cope with the many different sales tax laws from state to state, but that argument is hard to swallow. Amazon already collects sales tax in virtually every state for the Target department store chain and many other stores that sell on Amazon’s website.
- Amazon’s campaign is hurting communities across the country. States’ inability to collect most sales taxes from online purchases means that residents have to make do with more crowded schools, worse roads, and less health care — or pay higher taxes. Also, when Main Street businesses lose customers to online retailers like Amazon because they have to charge sales taxes and online retailers don’t, that hurts local economies and puts local jobs at risk.
The good news is that there’s strength in numbers. If enough states enact and enforce laws to ensure that they receive the taxes they’re legally owed, that will help level the playing field for local shops and provide public services with much-needed support.
More About Michael Mazerov
Mazerov joined the Center staff in January, 1998. He is a Senior Fellow with the Center's State Fiscal Project.
Full bio | Blog Archive | Research archive at CBPP.org
“But the Supreme Court has ruled that states can’t force online retailers to collect the taxes unless they have a “physical presence” in the state, and some retailers — the biggest of which is Amazon — don’t collect them. ”
The ruling was actually in regards to mail order merchants.
“Amazon claims that it can’t cope with the many different sales tax laws from state to state, but that argument is hard to swallow. ”
Do you have citation?
“Amazon’s campaign is hurting communities across the country.”
Except for those communities in Alaska, Delaware, Montana, New Hampshire and Oregon. Oh …those are the ones without a sales tax. Go figure.
Are you arguing that Amazon has a “moral” obligation to collect sales tax?
Dear GeekGirl:
Thanks for your comments. Here’s my response:
Yes, the Supreme Court’s 1992 Quill decision involved a mail-order catalog company, but there’s little dispute that its holding also applies to Internet merchants.
The blog post links to my report on Amazon’s sales tax collection practices. That report cites some statements from Amazon officials that nationwide sales tax collection would be excessively burdensome for the company. It also debunks those claims by documenting that Amazon already collects taxes in virtually all states on behalf of other retailers that sell on its website.
You’re correct, of course, that this isn’t an issue in states that do not have a sales tax; by definition, those states don’t lose sales tax revenue from untaxed Internet sales. I should note that, for the Center on Budget and Policy Priorities, this is not a matter of advocating that states impose sales taxes. In fact, the Center is not a huge fan of sales taxes because they disproportionately hit low- and moderate-income households. We would like to see lower reliance on them and greater reliance on more progressive taxes on income and wealth. Nonetheless, in the real world most states have decided to include a sales tax as one element of their tax systems. Given that they are levied, they should be levied in such a way that local merchants are not placed at a competitive pricing disadvantage vis-à-vis remote sellers that are able to avoid charging the tax. Likewise, consumers who prefer to shop or must shop in stores— for example, because they don’t have enough income to own a computer and subscribe to an Internet access account — shouldn’t have to pay sales taxes that others can avoid.
As my report on its sales tax practices documents, Amazon’s management has quite consciously built some of the company’s market share on the fact that its customers will avoid paying sales taxes on their purchases. It has gone way out of its way (as my report documents) to avoid the tax-collection responsibility that would contribute to the cost of paying for state government services – a cost that, as a result, gets shifted onto other taxpayers – and it ignores the fact that it is abetting an arrangement where its customers (knowingly or unknowingly) are breaking the law by failing to pay sales taxes on their purchases. I’ll leave it to others to determine whether that’s ethical or “moral” or not.
My point is addressed to state governments. It is that states have an obligation to administer their tax systems in ways that are adequate and fair. States now have a great tool for improving the adequacy and fairness of their tax systems by enacting laws aimed at fairly and uniformly enforcing their sales tax laws and applying them to all purchasers, whether they purchase in stores or via the Internet. They should use it.
Michael Mazerov
If government schools were any good at education, the states might have a point. Since the state’s monopoly on the educational system is in fact a miserable failure that cripples children’s ability to excel in the real world, I am glad that I get to keep that portion of my income to pay for a real, private education that will actually benefit my children.