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Sun Dec 27 2009 22:46:07

Should Amazon Be Required to Collect Sales Tax?

By: Ina Steiner

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Randall Stross published a rant about Amazon.com in the New York Times on Christmas Day, "Sorry, Shoppers, but Why Can't Amazon Collect More Tax?" Randall says Amazon.com collects sales tax in only five states, and writes, "If Mr. Bezos wanted to do his part to avert layoffs of schoolteachers and firefighters and, yes, professors at state universities, he should start collecting the sales tax."

The issue of whether online retailers should be required to collect sales tax is gaining steam. In April, AuctionBytes columnist Greg Holden wrote about a proposed law called the Main Street Fairness Act that would require all sellers (except small businesses that qualify for an exemption) to collect sales tax on purchases made by residents of the 23 states that have complied with the Streamlined Sales and Use Tax Agreement.

Why doesn't Amazon.com collect sales tax? It relies on the 1992 Supreme Court ruling in Quill Corp. v. North Dakota where the Court cited its concerns about the national economy. (Basically, there are over 8,000 tax jurisdictions that make the collection of sales tax complicated for online retailers.) Citing the Complete Auto case in which it had developed a four part test, the Court wrote, "The second and third parts of that analysis, which require fair apportionment and non discrimination, prohibit taxes that pass an unfair share of the tax burden onto interstate commerce." Currently, only businesses with a physical presence in a state are required to collect sales tax for that state.

But states are hungry for revenue, and small local businesses believe it's unfair for them to have to collect tax on sales while sites like Amazon.com do not. They say the Streamlined Sales and Use Tax Agreement (SSUTA) has simplified tax-collection so that there would be no burden on online retailers.

Taking matters into its own hands, the state of New York passed a law last year requiring Internet retailers with affiliates residing in the state - such as Amazon and Overstock.com - to collect New York sales tax, stating that affiliates count as a physical presence. Here's what the Performance Marketing Association says about such bills, which are catching on in other states:

These bills, whether proposed or passed, are flawed at their core. The crux of the bills is predicated on the idea that affiliates are extension of a merchant’s sales force and thus constitute nexus for that merchant. Not only is that premise absolute wrong, it discriminates against independent small businesses and entrepreneurs using advertising model not a sales model to generate their income.

So is it fair to blame Amazon.com CEO Jeff Bezos for states having to lay off schoolteachers and firefighters?

Is it fair to brick-and-mortar retailers who collect sales tax to have to compete with online retailers who don't collect tax?

Is the Streamlined Sales and Use Tax Agreement really a solution?




Comments (29) | Permalink

Readers Comments

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: fruity

Mon Dec 28 04:26:52 2009

I think its totally wrong for them to go after Amazon, only stupid journalists would think this way. instead you should be going after the PAYMENT SYSTEMS to be the collectors. They're the ones who are SITTING ON THE MONEY making profits. On the internet its different because on mainstreet you can use multiple forms of payment. On the internet you are restricted.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Mick

Mon Dec 28 07:26:20 2009

New York law already ready requires that NY residents pay tax on anything they buy on-line, or anywhere else out of state. Of course the law is largely ignored. Maybe NY could convince Amazon to report NY sales. Then NY could enforce the existing laws.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Jim S

Mon Dec 28 07:35:56 2009

My problem with Amazon is they don't offer a simple mechanism to add and collect sales tax on transactions in the seller's home state, requiring sellers to pay it out of the grosss profit.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: NY seller

Mon Dec 28 09:05:17 2009

Within the last couple of months, New York initiated a change that required some small businesses to pay a $50.00 fee for the right to collect state and local sales tax.  Yes, $50.00 in addition to collecting and passing the sales tax on to the state coffers.

When I received the demand for a small on-line operation that only collected (and paid) about $3.00 in sales tax in all of 2009 (only a tiny amount of the sales were made to NY residents), I simply changed the business to exclude sales within NY and turned in my sales tax certificate for that business.  I have always been 100% true in following the sales tax rules here in NY, but this decision was ridiculous on the state's part.  The state is becoming as anti-small seller as eBay!

NY has become so dysfunctional from a budget standpoint, that I find it ludicrous to accuse Amazon or any other internet seller as being the bad guy.

Oh, and as an aside, NY has a specific line on their state income tax forms for residents to enter an additional tax to cover their "unreported" internet sales tax.  And if you don't put at least a token amount in the line (as suggested by the state based on your income), it is a red flag for the auditors.  It's akin to the mafia protection racket.

And to top things off, the state senate basically shut down for more than a month this summer because of political bickering.  And the stupid voters in my state will probably do nothing about it!

As I said, NY is becoming more and more dysfunctional, so take everything you read about NY and the internet sellers with a grain of salt.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Jim

Mon Dec 28 10:06:47 2009

Taxes are used to provide services.  Given that a virtual company does not get services from a given state, why should they pay taxes.  

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: pete

Mon Dec 28 10:24:22 2009

What Jim S. said.  3P sellers are required to treat sales as tax included. In states like Ohio, MA, and WI, that is illegal.
Collecting USE TAX is a job of the States, not out-of-State sellers.
More details in my blog:
http://bit.ly/6mfsqg

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: pete

Mon Dec 28 10:30:39 2009

Ok, so If I live in SC and purchase an iPhone through a server farm in NC, purchase an item from CA that gets shipped from a warehouse in NY, who do I pay Sales Tax?  
If the feds had their way, 6% X 4!

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: RicRoe

Mon Dec 28 11:40:12 2009

Some questions....

Which state gets the revenue; the state where inventory is located/warehoused/sold/shipped from... or the state in which the venue is located and merchandise marketed through... or the state to which the merchandise is being shipped???

Arguments can be made for all three.

Who will be responsible to collect, report, and submit revenue payments; individual sellers, the venue, or the payment processor?

New York has sales taxes at the state and city level. New York City often has a sales tax free period such as on clothing purchased for back to school. How would fluid tax rates be monitored, applied and enforced?

Will sellers or venues have the potential to be audited by every state for sales tax compliance?

Will state revenue agents really fly out to the venue or visit each seller across the country to monitor compliance?

Will the expense to assure compliance be justified or will expenses exceed revenues thus resulting in a loss to states?

Let the games begin.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Patricia

Mon Dec 28 11:46:55 2009

I collect California State Sales Tax and that's enough.  If companies like Amazon are forced to collect sales tax everywhere then we eventually will be required to do it too.  Enough already!  this would be like giving the states their own ATM machine!

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: R. David L. Campbell

Mon Dec 28 12:47:06 2009

I was saddened to see the New York Times publish such a decidedly myopic dissertation singling out one company (of the millions selling online that are not collecting sales tax).

We agree entirely that the State of New York's so-called ''affiliate'' or ''complex nexus'' tax is completely wrong (as we have written about at length previously).

Moving onto a more appropriate form of Internet sales tax...

Yes, the Streamlined Sales and Use Tax Agreement is a real solution!  Congress is now preparing to debate this exact subject, and bring the Streamlined effort to full maturity!  The Main Street Fairness Act will soon be (re)introduced before congress to address this issue – that out-of-state or ''Remote Sellers'' should be required to collect and remit local sales tax.

As will come as no surprise to your readers, contemporary companies like Amazon.com and services like iTunes clearly have technical ability to keep track of many millions of transactions per quarter - it is time to revisit how difficult it is for such remote sellers to manage a mere 10,000+ local jurisdictions.

We also like to remind people that local sales tax are not new taxes dreamt up by some Washington DC tax legislator.  Local sales taxes are decided upon directly (or indirectly) by you, in the voting booth at every election.  When you vote for local services (police, schools, hospitals, etc) or projects (parks, transportation, sports facilities), these voter mandates are funded almost entirely by local sales tax revenues.  When you avoid  paying these local sales taxes (intentionally or not), only your local community suffers.

It is time to tell Internet merchants to start collecting and remitting local sales tax, just like the corner store has to. Stop pretending that the transaction is “tax-free” because Use tax is still due.

Your local sales tax should be collected & remitted for you by all merchants, so businesses and individuals don’t have to meticulously keep track of all out-of-state transactions.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Keith Yockey

Mon Dec 28 13:36:32 2009

Hi David,
We have debated this issue before. Tax jurisdictions are a lot more complicated than keeping track of thousands of SKUs and as many daily transactions.  States have these variables which my or may not apply:
~ Sales Tax on Shipping
~ Discounts or no tax on clothing, food, or other necessities.
~ Tax free holidays
~ Special tax on certain categories
~ Taxes for goods going in, out or both within a tax district.

That's just a small sample from legislators who are clueless about online retail and how it works.

Then there is the issue of identifying a tax district.  Myrtle Beach SC is a prime example.  They want 3% city tax on top of the 6% sales tax.  Who lives in the city and who does not?  Myrtle Beach has 3 zip codes and all zips divide the city limits. The City Manager's solution?  'Ask the buyer where they live before they pay'  Sure, I will be up @ 3AM when they make that automated purchase online.  It is illegal to collect more tax than what is owed in my State, so that also adds to the complication of the matter. http://bit.ly/7ODAhw

The eBay tax system is setup for only one tax rate per State.  Many sellers have wrongly used this table and are either overcharging or undercharging the correct tax for their State.  eBay does nothing to monitor or correct this flaw.  They instead defer to the State DOR.  Bottom line? Some are using this 'creative financing' to abuse the system, and no one is out there to enforce the law effectively.
PayPal is not much better.  You can setup tax rates their by zip code, but only 5 digit zips. As mentioned in my previous example, this will not work.
We discussed the use of 9 digit zips, and that may hold promise, but in 2009, only 5% of my buyers used a 9 digit zip.  In a world of identity theft, asking buyers for more information as a requirement of purchase may drive them away from online buying.  That is a real fear that needs to be addressed.
You know I am against collection of out-of-State Sales Tax by sellers.  Collection of Use tax is the way to go.  It correctly puts the burden on the buyer, not the seller to pay the legal tax owed.
SSUT does not provide simplification, as it does not eliminate all of the districts demanding special taxes. If it was to be fair, at minimum, the only tax that should be collected would be the State's Base Rate.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Mark Young

Mon Dec 28 15:27:16 2009

When you buy a product you owe the tax. It's a line item on your state return. Most people don't pay it -- it's pretty much unenforcable unless the online merchants collect it.

Most states provide most services from the sales tax revenue. When Amazon or another online retailer makes a sale it's a sale your local retailer would have made and they would have collected the sales tax. They also employ your local residents and pay other taxes, so the unfair advantage is hurting them, hurting your local employment, and hurting other local and state revenues streams. All this for a tax everyone owes but the states are not able to collect???

BTW, it's our esteemed Congress that's stopping the ability of states to get their revenue. States spent a decade working on simplifying their tax codes to meet the Supreme Court requirement, and a bill called the Sales Tax Fairness and Simplification Act has been before Congress for over a year, and it is basically DOA because special interests rule the halls.

And so it spirals. Because states aren't allowed by the federal government to require out-of-state businesses to collect and remit sales taxes, individuals can avoid paying them. But we won't escape the escalating taxes that will have to be imposed to make it up. Local governments will have to get it from us some way. In a shot from behind, many are even increasing sales taxes. Meanwhile, Main Street retail works with an increasing disadvantage, the jobs they create are put at risk, and the communities they support have less. I am not a big tax guy; this is not a tax increase issue. It's really much bigger. It's a matter of fairness.



Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: summer in the city

Mon Dec 28 15:51:34 2009



Schoolteachers and firefighters, oh my.
What about the starving kittens and homeless nuns?

Sounds like the New York retail scene took a hit this season.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Keith Yockey

Mon Dec 28 23:32:04 2009

@ Mr. Young
Advantage/disadvantage of online vs. retail is a MYTH. Legislators see a missing piece of pie as that disadvantage.  Online retail does not put the same tax load on a community as a B&M would (Fire, Police, Sanitation)  What law prevents a B&M from selling online?

States CAN collect USE TAX.  Just enforce existing law. This places the burden (correctly) on the consumer. They know what local taxes are, as opposed to a seller like me who does not know, nor do I care what taxes are due 3000 miles away.  The only reason it is not enforced is that legislators do not want additional wrath from the voters who re-elect them.

Exactly WHAT simplification has been done to accuratly collect Sales Tax from over 8000 districts not defined by zip code? As an online retailer, I am not prepared to file 45 tax returns quarterly.  It is a system designed to put small business out of business.

Lobbiests standing in the way of Congress?  No.  How about the Constitution.  It's called the 10th Amendment and States Rights.

There are solutions.  Writing new (poorly) written law is not one of them.  Read my blog.
http://bit.ly/6mfsqg

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: mindelec

Mon Dec 28 23:49:53 2009

"Advantage/disadvantage of online vs. retail is a MYTH. Legislators see a missing piece of pie as that disadvantage. "

it's no myth.  if best buy and amazon have the same item for $100, i save $10 from purchasing on amazon since where i live (chicago) the sales tax is 10.25%.  this HAS affected my purchasing decisions in the past year.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Avid AB reader

Tue Dec 29 02:59:44 2009

"stating that affiliates count as a physical presence"

Umm aren't they mere independent advertising agents for Amazon?

Are these lawmakers that dense?

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: goldilocks

Tue Dec 29 03:47:05 2009

@Avid AB reader:

"Are these lawmakers that dense?"

No, they are that desperate.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: Ebay's Slow Death

Tue Dec 29 03:53:20 2009

@mindelec

You might save $10 purchasing the item on the internet, but will probably pay about that amount to have it shipped.

We own a B&M store and sell on the internet.  Both venues have their advantages and disadvantages when it comes to retail.

We pay plenty of taxes, in many different ways. Why do they always drag out the Firefighters, Schools and Police when they start begging for more money from us? It seems like the state governments are really bad at managing the money they get their hands on now.  It also seems like the tax revenues are never enough for these people. Every state has its problems. How much more taxes can we be expected to pay? I'm sure it will never be enough.

Small businesses struggle, but we get none of the tax breaks the large businesses are able to get. We can't afford to buy our Representative's of Senator's vote.

The last thing any of us need is more taxes!

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: goldilocks

Tue Dec 29 04:40:21 2009

@Ebay's Slow Death:

''It seems like the state governments are really bad at managing the money they get their hands on now.  It also seems like the tax revenues are never enough for these people.''

No, they've always been poor at managing money, it was just not as obvious as it has become in recent times.  In the case of Chicago (and Cook County), the ''mismanagement'' is legendary.  I know I would feel less resistant to paying those taxes if I knew they were being (properly) used for ''Firefighters, Schools and Police'' rather than bankrolling the crony ghost payrolls!

In the meantime, to return to the question at hand, I say no, Amazon (and other 3P online venues) should not be required to collect the tax. Mr. Yockey is correct in pointing out the excessive administrative burden the requirement would impose.  

And I also agree that online business is not advantaged (fairly or not) over the B&M businesses, thanks to the (increasing) costs of shipping.  

Nowadays when I am contemplating a purchase and have a choice between buying at a B&M and buying online, my decision is based on which choice will cost me less out of pocket after factoring in all those extra charges.  More times than not, lately, the scales seem to be tipping in favor of the B&M shops to the point where their only real disadvantage may be a matter of inventory availability.

Should Amazon Be Required to Collect Sales Tax?   Should Amazon Be Required to Collect Sales Tax?

by: pete

Tue Dec 29 10:19:02 2009

@ mindelec
No advantage.  You chose NOT to pay the Use Tax that is lawfully owed.

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