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Amazon Will Eventually Pay Online Sales Tax, Says Analyst

It's time for Congress to step in, according to Attorney Mark Rasch

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It has been an interesting few weeks for retailers, both online and offline, in the state of California due to the new law requiring online retailers to pay taxes on their affiliate advertising. In response, ecommerce sites such as Amazon and Overstock have shut down their affiliate programs in the state and are trying to get California residents to overturn the law.

Do you think the law will hold up, or will it be overturned? Please share your thoughts.

As with any situation, there are two sides to this story. Online retailers, like Amazon, believe they are protected under a Supreme Court ruling in 1992 that said retailers shouldn’t have to pay sales taxes in states in which they don’t have a physical presence. Since Amazon doesn’t have a physical store in California, it therefore believes that the law is out of order.

California, on the other hand, argues that since these retailers have affiliates in the state that sell products for the online retailers, they should be required to pay a sales tax. Although California obviously has a financial motivation in its action, it is also aware that many brick and mortar businesses feel that online retailers have an unfair advantage over them. Brick and mortars are also feeling victimized by the growing trend in which consumers visit brick and mortar stores to test products but then turn around to make their purchases online.

In its effort to get the legislation overturned, Amazon is pushing the idea that because no one wants to pay sales taxes, they should oppose any initiative in favor of taxing online retailers. What’s interesting though is that consumers don’t actually avoid sales taxes by purchasing items online. They are, technically, supposed to keep their receipts and pay what’s called a “use tax.” Most people, however, have not heard about this tax, or simply choose not to pay it because it cannot be enforced.

Amazon is also advocating the idea that this law is placing a tax on the Web, a suggestion that Attorney Mark Rasch, the Director of Cybersecurity and Privacy Consulting at CSC, believes is completely false.

“The truth is it’s not a tax on the Internet. The question is, ultimately, ‘Even though you owe the tax, who’s going to collect and pay it? Is it going to be Amazon, or is it going to be you?’” he said.

According to him, the whole issue comes down to the Dormant Commerce Clause. As he explained, Congress has not acted in the area of taxing ecommerce, which has resulted in confusion for the states that have tried to legislate.

“When Internet ecommerce first started in 1990, 1991, Congress deliberately made a decision they weren’t going to step in, but now we’ve had 20 years of experience,” said Rasch.

He believes that online retailers are currently just buying themselves time and that Congress will step in soon and take action.

“It’s time for Congress to get in and say, ‘Can we tax this, or can’t we tax this?’” he said.

Rasch went on to say that things would probably “get worse before they get better” but that federal regulation would help to resolve the ongoing debate.

Do you agree with Rasch that federal legislation is the answer to the taxation dilemma with ecommerce? Why or why not?

Amazon Will Eventually Pay Online Sales Tax, Says Analyst
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  • http://www.towercooler.com Tom Hargrave

    I’ll be glad when this entire mess is over and everyone collects sales tax. This may seem like a odd statement from a online retailter but our advantage is not the small amount of taxes we dont collect. Our advantage over so called “brick and mortar” stores is our own efficiencies. We just dont carry many of the overhead costs a traditional retailer has carry.

    • Adsense Publisher

      I agree, I’d like to see everybody paying sales tax regardless of where or how they buy it. I’ll jump on board as soon as our own government learns how to live within it’s means.

  • Kumar

    Unfortunately Amazon’s cynical and savvy Referendum stunt will go its way as voters will vote their pocketbooks and it would be a challenge to e-fairness proponents to sway them by wonky arguments about the pernicious effects on jobs and community as they are Second Order Effects.
    Proponents of e-fairness looking to drive a stake through the heart of this festering, pernicious inequity should go back to the same place that naively caused this problem to exist, the Supreme Court, by using Amazon’s appeal on New York state’s Amazon Tax legislation as a vehicle to get the court to reverse its Quill vs. N.Dakota decision.
    With our legislative bodies grid-locked, polarized and dysfunctional, the Supreme Court is the only sheriff in town.

  • uscitizen

    Everyone wants the best schools, astroturf playing fields, community hospitals, maintained infrastructure, libraries parks and so much more, but no one whats to pay for them? Internet sales were never legally defined as tax free. If an online merchant from outside your state sells and ships you merchandise without collecting the sales tax, you as the consumer are still legally required to remit the sales tax legally due. Over the past 10 plus years companies have exploited this misconceived tax free status while states have done nothing to educate residents. While it was true back in 1992 that calculating and remitting sales due in the thousands of varying tax jurisdictions was indeed cumbersome, the dissenting opinion of the Supreme Court specifically stated “not underestimate man and his machines.” Implying there will be a solution in the future. It is now just as easy to calculate, collect and remit sales tax in any tax jurisdiction throughout the USA as it is shipping. Companies can now subscribe to Certified Service Providers that will seamlessly integrate into their shopping carts at no cost calculating, collecting and remitting sales tax due. No longer do companies have to spend countless hours or unnecessary money to calculate collect and remit multijurisdictional sales tax. One of the several Certified Service Providers provides the service FREE.

    Sales tax is in no way a new tax. it has always been due on all Internet purchases. Sales tax in no way taxes businesses or imposes and unnecessary burden upon businesses. Sales tax is simply a small percentage due on goods consumed, collected by merchants acting as middlemen insuring our communities receive proper funding for the many services making each of our communities a special place to live. The current legislative efforts by states are simply an attempt to collect sales tax legally due as consumers have demonstrated they would rather be tax evaders than patriots. Federal Legislation will end this debate helping to put teachers back to work, reverse the current %20 and increasing mall vacancy rate, provide much needed funding for communities progressively bettering our lives.

    The many services we all rely upon have to get funded to continue. If not through sales tax then increased property taxes, or perhaps increased fuel taxes, or maybe tax on food as some states have implemented. The alternatives to a fair and impartial consumption based sales tax are certainly no better. For those who earn more and spend more, pay more. For those who spend less, pay less.

    Each business model has it’s own set of operating expenses, however sales tax due was never intended to offer an unfair advantage over another. Simply, sales tax has always been due and I urge the many Democrats and Republicans who support the Mainstreet Fairness Act and those who have supported it in the past to pass the bill immediately. Enacting the Mainstreet Fairness Act will streamline administrative burdens for small businesses, provide necessary funding for the many services we all rely upon, and most importantly enable states rights to collect sales tax legally due.

  • http://thewebsensesolution.com Jon

    Tax the $%*@ out of everything so we can all have the services we want without bankrupting government. I am not willing to give anything up, and I am willing to pay tax to keep what I have. Simple math people…

  • Jones

    Ah, the tax argument again. If the states are willing to pay my costs for the added time and money it will cost me to send them tax, then so be it. I can guarantee it will cost them more than they will get from me though, LOL. I don’t think I should have to collect sales tax for a state that I do not use any services in, I have no affiliates in any state. Its up to the customer to send the tax to their states department of revenue. If a customer from the state we are located in buys something, we collect the sales tax and send it in quarterly. If the states hadn’t squandered all of their money, they wouldn’t be in the position they are in now and this wouldn’t really be an issue. The other thing that is going on is the national companies are feeling the crunch that online retailers are putting on them. But here is the thing, most national retailers have website that can be ordered from too…I’ll sum up the tax argument so it clarifies it for everyone. The states want more money because they squandered their piles of money away and they don’t care who they suck it out of, and the national retailers would like nothing more than to put all of the mom and pop business’s out of business, what better way to do that than to make them pony up more money and put added burdens on them?

  • http://www.ragtimepiano.net King Ralph

    Buying on the Internet is no different than buying through mail order. Having on line retailers collect sales tax for 50 states is a costly accounting nightmare that will force a lot of companies out of business. Some states have different tax rates depending on the county making it even more complex. Let the purchaser pay the use tax directly to their state of residence and that will solve the problem.

    • J. Anne

      This is how I see it too. paying taxes in 50 states when you lone have a business in ONE is not only ridiculous, it is STUPID.

    • uscitizen

      Here is the simple truth. I am a small farm with less than &50k in annual sales and I have enabled my web site/company to calculate, collect and remit sales tax for any tax jurisdiction in any state. The service is available to any business of any size free of charge. Any business can do the same and save valuable time and money from doing it the old fashioned way. For those small business owners who would like to streamline and reduce administrative costs log onto TAxCloud.net. My business now saves money and enjoys greater market exposure as nexus concerns and states desires no longer effect my business. So for those of you caught in the ice age of computing, continue crying. However, for the true entrepreneurs and progressive patriots there is new technology available to increase your productivity and profitability. I have employed and enjoy the benefits TaxCloud.net makes available, and I hope those of you with a desire to grow your business progressively find this information as useful as I have. For those of you who continue to be reactive and complain its too difficult, good luck.

  • http://www.healthcaresalaryonline.com Jesse

    I am not sure that Congress is the right way to go. Wouldn’t saying “yes” to online taxes basically be a violation of the Republican pledge about raising taxes? How would Grover Norquist and his group of voters feel about this?

    The real issue though is it’s an unfair burden on most business’s to expect them to collect and remit taxes to over 50 different states and to follow all 50 plus set of tax codes. And shouldn’t we talk about business taxes and licenses? if we are going to squeeze every dollar we can from the internet then shouldn’t Amazon and everyone else pay a fee to conduct business in the state since they are selling to buyers there? Brick and mortar businesses often pay business license and B & O taxes so why not internent business too?

    • http://nanwich.com Nancy Wichmann

      Business licenses are generally to offset vehicular traffic generated by the business. If they have a physical presence, then they already have to have a license; if they don’t have that presence, they aren’t generating any traffic.

      But, it’s a whole more than 50 sets of tax tables – many counties and cities also have sales taxes.

    • Jones

      Jesse, you think businesses that ship to all 50 states should get a business license from each state? That alone would put every small business out of business. Do you have any idea what that would cost? Since I do not have a physical presence in 49 of the 50 states, why should I or any other business have to foot the cost to collect taxes for services that are not used in those states? Many businesses are not “conducting” business in states other than the state(s) they have a physical presence in. We are simply shipping a product to a customer that is it. When you buy from the internet, send the proper amount tax to your states department of revenue that would solve the whole tax issue if everybody did this too.

  • http://www.healthcaresalaryonline.com Jesse

    And if the issue is that people don’t want to pay the use tax why don’t states do what they did for Tobacco sales? Just force the retailers to send them a list of all thier customers and what they bought. Then the revenue department in each state can send the same extortion letter they sent to tobacco users. Pony up the taxes you owe or face prosecution and penalities. Instead of having retailers do the job for them why aren’t states doing the job they should?

  • http://nanwich.com Nancy Wichmann

    Gosh, I pay a tax every time I buy online – it’s called “Shipping.”

  • Jim Hudspeth

    In my view, Amazon will ultimately COLLECT online sales tax (the tax is paid by the buyer). If it doesn’t, it will eventually strangle itself in the marketplace.

    I do not see California and other large states yielding to Amazon on this issue.

    The recent bankruptcy of Borders serves to underscore my point. If online sellers are permitted to continue to do business without collecting sales tax they will eventually destroy brick & mortar sellers who must collect sales tax.

    I support a level playing field.

    • Jones

      Jim, do you really think that online businesses will “destroy” brick and mortar stores because online stores do not collect tax? That is not the cause of the demise of brick and mortar stores. The real reason for their demise is a poor business plan. In the case of Walden Books and Borders it was that they didn’t think of the future. Its that exact thing that did F.Y.E. in as well, instead having downloadable movies, music and games you had to go to their store and buy a hard copy…When the Kindle, Nook and numerous other e-readers came out, customers could download any book to their device, a device which has the ability to literally store thousands of books, what a novel idea! Too bad Walden/Borders never caught onto the technical age, they were still selling hard copies of books while the other book companies were already selling digital copies, that is what did Walden and Borders in and that is also what did F.Y.E. in too.

      Regarding your level playing field comment, if you and everyone else that purchase online paid sales tax to their state department of revenue which is actually the law, then it would be a level playing field in that regard. It never seizes to amaze me that people who are irresponsible want someone else to take care of their responsibilities so they don’t have to. These same people are the ones that scream “we have the government in every facet of our life” or “Why have the prices gone up at the store”. Its because they want the government to solve the problem instead of them taking on the responsibility to do it themselves and when some else has to take care of it, it costs money and that cost is passed onto the consumer…

  • ohm

    Regressive taxes ( like VAT, GST, Sales Tax ,…) should be abolished like conscription. May Henry George’s land value tax be considered?

  • Steve

    Are you serious? This is another liberal way to control the free economy. California is in it’s current dismal situation because they tax their own residents too much already and are the 6th highest taxed state in the country. The liberals are destroying the once great state.

  • http://www.b-adore.com Aaron

    By no means should a company pay a tax to a state in which it does not reside. If that’s the case then we will have to pay a tax to every state we drive through on holiday travels (if gas prices weren’t enough to keep you imprisoned in your home).

    But the real issue is that our government is about to go bankrupt and this burden is trickling down to the states and thus trying to trickle its way down to the people. This is a problem that really can not be solved because our bank is a privately owned bank working under the cloak name as the Federal Reserve and is no more a federal bank than bank of america. And since every dollar that is printed in america has a debt of 10% the government will always be in debt. We thrive and struggle on the “Federal” Reserves willingness to loan money. Lets fight the root of the problem to get a solution.

  • http://www.chaussures-airmax90.com/ air max

    I am not willing to give anything up, and I am willing to pay tax to keep what I have. Simple math people…

  • http://www.homeviewllc.com Tim Ross

    As a small business owner who sells rider signs all across the nation to compliment our photo-video-website sales, I could not keep track of a constantly changing tax rate in every single community in the nation. It would be impossible and I would have to stop selling rider signs… which would weaken our business as a one-stop-shop and dramatically reduce our revenues and, most importantly, reduce the amount of work to all our subcontractors all across the nation. This concept of taxing out-of-state Internet consumers puts an undue burden on business owners. Such a tax would be devastating to our already struggling economy.

  • http://www.modani.com Modani Furniture

    It will be very difficult and more work for online stores, we will have to hire more people o contract a third party service to do the extra work, so higher price…

  • Alex

    Both sides have valid points.. But isn’t the real issue that companies with a physical presence in one state must charge sales tax in the state which they reside in if they sell online?