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Wed Sept 19 2012 17:30:12

California Sunsets Amazon Sales-Tax Freedom

By: David A. Utter

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The sun wasn't the only heavenly object to set in view of California this past weekend. A long time moratorium on Amazon charging its Golden State customers sales tax faded into the Pacific.

Years of being battered by a horrific economy meant seeking any potential source of revenue to fill depleted state treasury coffers. The San Francisco Chronicle puts the numbers at $83 million in additional tax revenue just from Amazon sales, making it a sizeable chunk of the $300 million the state foresees collecting in its first year.

California joins Kentucky, Kansas, New York, North Dakota, Pennsylvania, Texas and Washington in requiring ecommerce sites like Amazon to collect sales tax from customers.

Other states that have long left the task of reporting sales taxes to taxpayers seem likely to take that inconvenience away. Indiana for one will begin collecting online sales taxes in 2014, the state announced in January. Of an estimated $75 million in additional revenue, Indiana anticipates $20 million will come from Amazon.com sales.

While the cutting-edge technology and sizable net worth of Amazon enables it to integrate this requirement likely with minimal inconvenience, it may be a different story for the smaller ecommerce sites on the internet. Such entrepreneurs will need to stay on top of their ecommerce providers to ensure lawful collections are taking place with each sale and document them accordingly.

Indeed, the spread of online sales tax collection laws may be a boon for one ecommerce segment - sellers of tax collection software packages for either standalone use or integration into ecommerce suites.

About the Author
David A. Utter is a freelance writer based in Lexington, KY. Find him on LinkedIn.

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Readers Comments

California Sunsets Amazon Sales-Tax Freedom   California Sunsets Amazon Sales-Tax Freedom

This user has validated their user name. by: Tula

Wed Sep 19 20:11:10 2012

I would love to see the government set up a database of all tax jurisdictions and rates so there would be a free way to access this information and assure it's accurate. I cringe at the thought of having yet another third party insinuate itself in my sales flow. My data is confidential and I don't want any other third parties using it. The biggest concern is going to be having to comply with the huge variations in rules. There's a lot of talk about exemptions for small sellers, but what if each tax jurisdiction defines "small" differently? And do we really expect that definition to remain static or will it drop lower and lower (like tax brackets) once states see it as a way to grab even more revenue with no effort on their own part? No matter how you look at it, this is not a good thing for small online sellers.

California Sunsets Amazon Sales-Tax Freedom   California Sunsets Amazon Sales-Tax Freedom

by: xcergy This user has validated their user name.
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Thu Sep 20 00:10:21 2012

Nice dream Tula.  That may just happen if federal law is passed.  In the mean time, lookup tables are available via most State DOR website, or by a neet app offered by alavara http://www.avataxrates.com/  The downside is that it's hard to know if sales tax is exempted for certain items such as clothing, food, or even shipping.

California Sunsets Amazon Sales-Tax Freedom   California Sunsets Amazon Sales-Tax Freedom

This user has validated their user name. by: Nan

Thu Sep 20 08:56:51 2012

I still don't get it.  And I haven't seen it explained anywhere.  What does the venue  (Amazon et al.) do with the sales tax when they collect it?  Send it to the seller for the seller to deal with?  Or send it directly to the appropriate state?  

California Sunsets Amazon Sales-Tax Freedom   California Sunsets Amazon Sales-Tax Freedom

by: Beth This user has validated their user name.

Thu Sep 20 09:19:42 2012

Nan, if you set it up for Amazon to collect it, they send you the money, minus 2.9% of it that they keep for their "troubles" collecting it.  Seems like that should be outlawed, to me anyway

California Sunsets Amazon Sales-Tax Freedom   California Sunsets Amazon Sales-Tax Freedom

This user has validated their user name. by: Nan

Thu Sep 20 09:37:21 2012

Ahhh, OK - Thank you Beth!
(2.9% !!  wow, that's rather ebay-ish of them)

California Sunsets Amazon Sales-Tax Freedom   California Sunsets Amazon Sales-Tax Freedom

This user has validated their user name. by: Tula

Fri Sep 21 18:55:29 2012

@xcergy: You are correct. State sales tax collection is not just a matter of collecting x% on transactions for that state. There are local taxes on city, town, and county level, plus varying rates and rules for collections. One example is that in MA, clothing under $250 is not taxed, while in Washington state, all clothing is taxed. There are lots of rules like this and they vary widely from state to state, so it's not  a matter of just collecting a flat tax rate. And defining categories of goods is not straightforward, either. What is food or clothing in one state, may not be the case in another state. Keeping up with every rate and rule for every jurisdiction is a huge task, not to mention all the reporting requirements that go along with all this.

I worked on a contract job for Amazon, in their financial group, a couple years ago. I saw first hand what resources are required for sales tax collection and reporting just on the handful of states where they were already collecting taxes. It's not simple or cheap to do it and will be a huge burden on all businesses, even those large enough to have the resources to deal with it. Don't forget that you'd have to go through every item you sell and assign it to some sort of tax category in order to properly calculate the tax rate and business rules you need to apply.

That's why I want to see a free database out there. Or even something with a *reasonable* subscription fee. If that were available, people would at least have the option of rolling their own solutions instead of having to depend on third-parties or pay through the nose to a venue or provider to manage this nightmare for them. That would make a "level playing field" like the proponents of these sales tax collections are so keen on. Probably wishful thinking, though.



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