Paul L. Caron

Saturday, March 5, 2011

Zelinsky: The Siren Song of State Amazon Laws

Edward Zelinsky (Cardozo) has posted The Siren Song of State Amazon Laws: The Colorado Example, 59 State Tax Notes ___ (2011), on SSRN. Here is the abstract:

In Direct Marketing Association v. Huber, Judge Robert E. Blackburn of the U.S. District Court for the District of Colorado preliminarily enjoined the executive director of Colorado’s Department of Revenue from enforcing Colorado’s new “Amazon” law. Judge Blackburn‘s decision enjoining the enforcement of Colorado’s Amazon law indicates the futility of state efforts to collect use taxes on internet and mail order purchases absent federal legislation authorizing such efforts. The only (and overdue solution) is for Congress to enact federal legislation overturning Quill Corp. v. North Dakota, [504 U.S. 298 (1992),] thereby permitting the states to enforce use tax collection responsibilities on out-of-state sellers including those sellers which lack physical presence in the taxing state.

It is unsurprising that Amazon laws appeal to legislators and governors scrambling for tax revenues in a challenging budgetary environment. However, Judge Blackburn’s opinion confirms that, under current law, Amazon laws like Colorado’s are fiscal siren songs, seductive but ultimately forbidden.

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Calling it Amazon tax invites misperception.

People in Illinois and Colorado owe their states "use tax" on taxable items that they purchase from Amazon, period. If they don't like that, they should take it up with their legislatures.

By and large people don't take it up with legislatures; instead they take the simpler step of just not paying. The States in turn want to think they would get paid, if only they could force Amazon to collect the tax on their behalf. The courts have ruled, however, that the States have no right to make Amazon their tax collector because Amazon has no physical presence in their borders. The States, undeterred, now lobby Congress to make Amazon do their bidding...

The real question is why do we as citizens put up with having Use Taxes on the books given that no citizen is willing to pay them and no State has real means to collect them, and thus no one ever does pay them except on registered big ticket items like cars and boats?? Pretending that these taxes are "lost" revenue is a convenient fiction that feeds state government dreams of easy money...

Posted by: fincounter | Mar 8, 2011 6:53:14 AM

I never got the argument about "level playing field" with the brick-and-mortar guys, or "Paying for the costs they impose."

Taxes should raise revenue, not be artificially jiggered in pursuit of soemon'e slanted idea of "fairness."

The outfit that actually imposes local costs, such as UPS, does have a local presence and does pay taxes and fees. If the web or mail-order vendor uses the USPS, well, take it up with the Federal government. Anyway, that argument makes it out to be a user fee, not a tax, and probably isn't really the legal road the taxing authority wants to go down. At least in IL, where a fee (as opposed to a tax) must be used to benefit the payer and cannot exceed the benefit.

The real issue is the government wants more revenue, which may be a perfectly legit reason, and that govt should tax its actual tax base in whatever way it thinks best to raise that revenuie. But claiming something is in its tax base that clearly isn't is indeed a mirage.

Posted by: Marty | Mar 7, 2011 4:52:22 PM

Huggy; Most states have a gasoline tax that is supposed to take care of road maintenance. So tell us again why they need a sales tax other than to waste more money.

Posted by: chemman | Mar 7, 2011 4:27:30 PM


Trucks whose owners pay registration fees, and whose owners pay fuel taxes that fund the roads that the trucks drive over... so the delivery process generates revenue for the state.

Posted by: Doug G | Mar 7, 2011 4:24:03 PM

Mr. Guest: Not much of a flaw, since those aren't Amazon trucks using those roads. The shippers are arranging to use the roads (getting commercial licenses, paying the local gas taxes, tolls, and so on), and then selling that use, and not even to Amazon, really; the shippers are selling that use to the customer, who pays the shipping. Amazon just arranges it for you.

Posted by: Boobah | Mar 7, 2011 3:47:36 PM

Anon and GRW3,

How does an Amazon bought product get to your house. When my buys products on Amazon they arrive via a truck which uses roads that are paid for by the state. So unless you get your Amazaon purchases airdropped you are most certainly using the public fisc.

i am not defending the states in this attempt merely pointing out a tiny flaw in your argument.

Posted by: Chris Guest | Mar 7, 2011 1:52:32 PM

Oops got the name wrong Sorry John Stephens. I meant Bill Peschel. This has been a very interesting discussion and I've enjoyed every bodies comments.

Posted by: Huggy | Mar 7, 2011 10:02:32 AM

John Stephens: To the best of my knowledge Amazon has yet to make a profit that justifies their stock price. I think their current business model is unsustainable. But I have no personal knowledge of this and they may be able to give deep discounts and collect taxes and still be a going concern as you suggest. Best Regards.

Posted by: Huggy | Mar 7, 2011 9:57:53 AM

"If Amazon doesn't like it, they should close all warehouses and offices in sales-tax states and open them in states without sales tax, and do the same with affiliates."

Amazon has done exactly this in several jurisdictions already. People still order from there, but now the state is losing the income tax from the affiliates and warehouse workers in addition to the sales tax. Takes government to think that makes sense.

Posted by: SDN | Mar 7, 2011 9:51:53 AM

Huggy: Tell it to Amazon. Thirty percent off and no sales tax.

Posted by: Bill Peschel | Mar 7, 2011 7:23:28 AM

"Why exactly should a company that places no demands on the public fisc of a state be forced to make contributions to that state, again?"

Because Amazon has money, and they WANT it.

Posted by: John Stephens | Mar 7, 2011 7:17:34 AM

Use Tax I assume is the same as Sales Tax

It is not a tax on the business. It's a tax on you and your posession of a good.

It always seems that the people most complicit with the idea of more taxes are the most likely to be wearing Lands End shirts and Birkenstock shoes.

If your state thinks sales tax is a good idea you should pay it on what you purchase. If you don't like paying sales tax, do something to get rid of it but understand the government has to get revenue from somewhere, even is exhorbitant salaries and retirement benefits are brought to reality.

Posted by: GRW3 | Mar 7, 2011 7:13:23 AM

Would there be any reason the states could not tax the credit card transactions that are used to pay for almost all Amazon sales?

Posted by: Scurlock | Mar 7, 2011 6:50:01 AM

Could the feds satisfy this by imposing a 4% excise tax on all internet and mail order sales crossing state lines, with the revenue split among the states?

OTOH, states could solve this problem by relying on other taxes and dropping their now-extreme sales tax rates. Oregon seems to get by with no sales tax.

Posted by: Kevin M | Mar 7, 2011 6:34:59 AM

New York's Amazon tax has been around for a while already.

Posted by: David | Mar 7, 2011 6:28:23 AM

No nexus, no taxes. What's wrong with that?

If Amazon wants to implement an affiliate system whereby they handle the transactions for affiliates, and the affiliate has nexus, then they need to collect sales tax for those affiliates when they do business with folks in the same state. If Amazon doesn't like it, they should close all warehouses and offices in sales-tax states and open them in states without sales tax, and do the same with affiliates. There are a number of states without sales tax to choose from, so presumably the reason they haven't is because there are other profitable benefits of being in the states they're in.

Posted by: Dr. Kenneth Noisewater | Mar 7, 2011 6:13:05 AM

Shipping costs limit internet sales. Sales tax collection would make it even more of a luxury item.

Posted by: Huggy | Mar 7, 2011 5:55:46 AM

@mike livingston:
You conflate several different concepts in your comment which are not equivalent. Perhaps most importantly, it is not at all correct to imply that traditions or activities for which "no one can remember the original reason" are therefore nonsensical.

It is also a bit of an overreach to imply, via your analogy, that "no one can remember" in this case. Some of us remember very well why laws were put in place to restrict the ability of governments to confiscate privately created wealth. Unfortunately "The Great Debate" is not taught with any sort of thoroughness any more in public school "history" classes. When it is even mentioned at all.

Reasonable people may find different sides to the issue of taxation of Internet commerce... but it is disingenuous to pretend that the whole argument centers around old laws and customs for which "no one remembers" the reasons, thereby preemptively declaring one side of the argument illegitimate.

Posted by: Matt Knecht | Mar 7, 2011 5:50:15 AM

The "take root by accident" idea arises from the installed base advantage. (Today we no longer smoke as much in cars, but still have that cylindrical socket, because we've made so many car-chargers in that shape...)

By the way, I hope that isn't a wistful tone in Mr. Livingston's post, indirectly hinting that use taxes "make real sense." Starve the beast.

Posted by: Robert Arvanitis | Mar 7, 2011 5:48:03 AM

Why exactly should a company that places no demands on the public fisc of a state be forced to make contributions to that state, again?

Posted by: R C Dean | Mar 7, 2011 5:41:09 AM

Is siren's song an apt analogy here?

Posted by: anon | Mar 7, 2011 4:24:44 AM

The illustrious state of Illinois is going after its residents big time for use tax. (The income tax increase wasn't bad enough.) They suggest you go for their new amnesty program (no penalties & interest for filing use tax form ST-44 for the last 6-1/2 years). Of course, that extends the Statute of Limitations for another six years. And read the IL answer to one savvy guy's question.

"If I file an ST-44, Illinois Use Tax Return, during the amnesty period, does it satisfy my liability with the Department of Revenue?"

"If the Department of Revenue finds that you owe additional tax, we may assess the additional tax plus applicable penalties and interest. We conduct routine audits based on information received from third parties, including the U.S. Customs Service and other states."

Oh, & if you failed to keep complete records, you may just hand over to IL .0006 of your AGI.

Posted by: Gerald | Mar 7, 2011 3:52:49 AM

The effective exemption for many Internet sales is a wonderful example of how things that make no real sense take root by accident and then become extremely difficult to change. It's a bit like Primo Levi's discussion, in The Period Table, of why men and women's shirts button on opposite sides, or why items are included in chemical compounds when no one can remember the original reason for their inclusion. The tax field seems especially prone to such accidents.

Posted by: mike livingston | Mar 6, 2011 12:50:38 PM