Paul L. Caron

Wednesday, August 3, 2011

WSJ: Amazon Battles States Over Sales Tax

Wall Street Journal, Amazon Battles States Over Sales Tax: 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.

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If states would allow the internet retailers to collect just the basic state sales tax, it wouldn't be such a burden to the retailers. It's all of those city and county taxes that make it an expensive burden for these businesses. I used to do as many as 250 tax returns a month for a small direct selling compamy (35 for one state alone!) to comply with all the tax obligations in many jurisdictions. Collecting the taxes doesn't add as big a burden as disbursing them to the proper jurisdictions as it stands now. It's a ridiculous burden to put on any company. What happened to the Streamlined Sales and Use Tax Initiative? The latest agreement form, amended in May 2011 is 200 pages long and is very complex.

Posted by: Aleta | Aug 4, 2011 11:00:28 AM

Its amazing they are able to skirt attributional nexus with their warehouses in all these states. I drive by a warehouse with Amazon LLC signage every morning, and yet I am not charged sales tax on my orders.

The streamlined sales tax initiative is partly to blame, as they bollox up the standardization process. They will have to wait to piggyback the eventual national VAT in 10 years or so.

Posted by: Dave | Aug 4, 2011 7:03:15 AM