Amazon.com Inc., the world's largest online retailer, hasn't charged sales tax in most states since its founding in 1994. And it has taken some extreme measures to keep it that way.
Among them: Staff traveling around the U.S. have been required to first consult a company map that shades each state red, yellow or green, said three people who have worked for the retailer. These people said they needed permission from managers or company lawyers before entering "red" states because a worker's actions might trigger laws that force Amazon to collect taxes in those states.
Such steps to avoid local levies allow Amazon to undercut in-state retailers by the amount they must add in sales tax, which can exceed 8%.
A close examination of Amazon's corporate practices, based on interviews with more than a dozen former employees and people who have done business with the Seattle company, as well as a review of corporate documents, indicates that the company believes its sales-tax policy is critical to its performance.
Credit Suisse recently estimated that if Amazon were forced to collect sales taxes in all states, it would lose as much as $653 million in sales this year, or 1.4% out of an estimated $45.5 billion in revenue. ...
Like many online retailers, Amazon says it is obliged to add state and local sales taxes only on purchases from residents of states where Amazon has physical retail operations. But it also has defined retailing narrowly as selling, so related operations such as warehouses don't put it on the hook to charge tax, company representatives have said.
Amazon said it follows a 1992 U.S. Supreme Court ruling. Legal experts say the retailer's approach is aggressive but within the law.
In response, lawmakers in nine states have passed new legislation aimed at limiting Web retailers' wiggle room to avoid charging sales tax. Amazon is now challenging the bills through a lawsuit and a ballot initiative. It is simultaneously redoubling its efforts to avert triggering their requirements for tax collection by retreating from states it deems unfriendly.
State and local governments nationwide this year will lose $10.1 billion to $11.3 billion in sales taxes not collected by Web retailers, estimated University of Tennessee researchers in a 2009 report.