WebProNews » Sales Tax

Amazon Will Eventually Pay Online Sales Tax, Says Analyst

Abby Johnson — Fri, 22 Jul 2011 17:15:20 +0000

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 Attempts Sales Tax Workaround in Texas

Josh Wolford — Wed, 22 Jun 2011 13:56:51 +0000

The debate regarding the way Amazon.com does its online business has been going on for some time now. The major point of contention has been the fact that for years, Amazon has been able to sell and ship goods across most of the country without charging any state sales tax.

It’s not hard to see why this practice upsets some groups within the states, especially those who protect the interests of brick and mortar stores both large and small. Why would a customer buy a $700 home theater system from a local electronics retailer and pay 6% sales tax (or more) when they can get it shipped to their door free of that state-imposed sales tax via Amazon?

Some states have stepped up and voted to approve new tax laws that require online retailers to collect state sales taxes. Most recently the state of California voted on this issue as part of their new budget.

Here’s how it usually goes – a state decides to enact laws requiring companies like Amazon to collect sales tax. Amazon threatens to sever ties with the affiliates in that state. TheStreet.com has a nice map that shows the current state of the union when it comes to the Amazon tax wars.

The law of the land for a while has said that states cannot force businesses to collect sales tax if it doesn’t have a physical presence within the state. In states like Kentucky, Kansas and New York, Amazon already collects sales tax because those states contain Amazon offices. But no actual Amazon offices equals no sales tax. Amazon’s CEO Jeff Bezos has said that it is protected in the U.S. constitution’s prohibition of state’s interference in interstate commerce -

And in the U.S., the Constitution prohibits states from interfering in interstate commerce. And there was a Supreme Court case decades ago that clarified that businesses — it was mail-order at that time because the Internet did not exist — that mail-order companies could not be required to collect sales tax in states where they didn’t have what’s called “nexus.”

But now, more and more states are saying that Amazon affiliates count as physical presences and are enacting sales tax regulations on the company. Texas is one of those states that is currently in battle with Amazon.

Apparently, Amazon has extended a compromise to the Lone Star State. Amazon proposes that they would spend $300 million in the establishment of distribution centers across the state that would provide over 5,000 jobs to Texans. All they ask in return is to remain exempt from collecting sales tax for the next 4 1/2 years.

They also suggest that Texas’ comptroller sets up a separate website for the collection of voluntary sales tax owed on Amazon purchases. That money would then go directly to the state. It’s highly suspect that many people would choose to pay a sales tax, however.

The current push for online-tax regulation in Texas is part of a pending school finance bill. Governor Rick Perry is unable to line-item veto that online-tax provisions, so he would have to veto the entire school funding bill if he wanted to keep his state online sales tax free.

Texas will certainly not be the last state to debate this issue. What do you think? Should Amazon be forced to collect sales tax? Or does that interfere with interstate commerce laws? Should the federal government step in and mandate a standard online sales tax? Let us know what you think.

NetChoice Voices Opposition To Online Retail Tax

Mike Sachoff — Thu, 29 Jul 2010 19:51:01 +0000

Representative Paul Hodes (D-NH) introduced today a bipartisan resolution to protect online out-of-state sellers from having to collect taxes in states where they have no physical presence.

The resolution (H.R. 1570) "Supporting the Preservation of Internet Entrepreneurs and Small Businesses," says that Congress should not impose unfair tax collection burdens that would hurt the U.S. economy and consumers.

The resolution is a response to legislation introduced in July 2010 by Representative Bill Delahunt (D, Mass.) which would force all U.S. online retailers across the nation to become tax collectors for states that have joined the Streamlined Sales Tax Project (SSTP).

"Don’t believe it when tax collectors say their software makes it trivial for tiny sellers to collect everyone’s sales tax," said Steve DelBianco, executive director of NetChoice.

"Small sellers will spend thousands of dollars making changes to their website software, plus endless time and accounting fees to handle exceptions, customer questions, and state tax audits."

Under the 1992 U.S. Supreme Court Quill v. North Dakota decision, the court found that the 45 state and 7,600 local sales tax systems across the country were too complicated for a retailer realistically to know how much tax to collect and remit.

Currently online retailers are only required to collect sales tax from out-of-state customers if they have a physical presence, such as a brick-and-mortar store.

"Representative Hodes and his colleagues are to be commended for standing against a national tax system that would saddle small retailers with new collection and compliance burdens," said DelBianco.

"We all support a simpler tax system, but the streamlined sales tax project has become the proverbial wolf in sheep’s clothing."

Overstock Dumps NY Affiliates Over Sales Tax

WebProNews Staff — Thu, 15 May 2008 12:53:35 +0000

While Amazon plans to fight New York’s new law that requires it to collect sales tax on online purchases, Overstock chose to kick out its New York affiliates to avoid that collection duty.

Overstock dropped Business Know-How a note, telling the site it had been booted from the Overstock Affiliate Program. As a New York-based site, Overstock faced the prospect of collecting sales tax from business driven through affiliates like Business Know-How.

“New York: You’re losing far more than you’ll gain with foolish laws like this one,” Business Know-How said, citing not only the sales tax the state won’t collect, but the income tax they won’t get either based on those affiliate commissions.

The Bits Blog noted a comment from Overstock about their decision to back down rather than fight for their New York affiliates:

“We believe the law is unconstitutional and won

Amazon And New York’s Battle On Sales Tax

Andy Beard — Fri, 02 May 2008 20:41:17 +0000

For years I have been paying sales tax (VAT) on purchases I make online through services such as Clickbank. It is inconvenient but it is much easier for Clickbank to work this way then to have to monitor the location of a seller and buyer.

The general rule in the US, as far as I can determine is that if you have a business presence in a state, you have to pay tax there. This applies if you own your own servers in the sate, or if you have employees.

Thus it might be beneficial for me, living in Europe to only rent servers, and to avoid hiring someone from the US as a full-time employee.

The New Law Amazon Is Fighting Affects All Affiliates

The chances are if you have an affiliate program, that at least one of your affiliates is based in the New York area.

If the logic Amazon is using is correct then anyone with an affiliate program is going to have to pay tax in NY, even if a sale is made though an affiliate link owned by a non-NY resident.

Impossible To Determine If Affiliate Has NY Presence

Whilst it is possible to limit an affiliate program to only affiliates from outside New York, it would be extremely hard to police.

An affiliate themselves could have employees in NY, or run servers there.

Can of Worms

Ultimately it seems to me the only fair way to handle things is an all or nothing approach. Tax all internet sales or none of them to New York residents.

If you run an affiliate program yourself, it might be time to consult your tax and legal advisors.

Comments

Spitzer, Amazon.com At Odds Over Sales Tax

WebProNews Staff — Thu, 14 Feb 2008 18:57:27 +0000

New York Governor Eliot Spitzer wants all online retailers to collect tax on New York sales, even if the retailer is not based in the state.

In online commerce, consumers are supposed to pay tax on their purchases if their state normally collects a sales tax. This has not been enforced outside of companies with a physical presence inside a state, an example being dsports.com, which will charge me 6 percent Kentucky sales tax when I buy a Giants Super Bowl Championship hat from their website.

Purchases on Amazon don’t trigger a sales tax charge, since Amazon is based in Washington state. I will have to fork over a few bucks as an honest citizen at tax time for buying a few things on the site in 2007.

Spitzer’s position as noted in the Bits Blog would make Amazon do the tax collecting instead of relying upon the citizenry to remember those purchases at tax time and fork over the required tax dollars to Albany, in New York’s case. Amazon wants no part of that.

New York State will try to get around the inconvenient court ruling that permits Amazon to avoid collecting taxes. Bits blogger Saul Hansell said Spitzer and crew will try to classify any business with an affiliate program, and at least one member in the state, as qualifying it to collect sales taxes.

The technology for collecting taxes online has been in existence for some time. Wal-Mart’s website does so, as do plenty of other companies. They rely on specialized software to do so; Netflix CEO Reed Hastings cited Vertex Inc on Bits as a program to accomplish this.

It’s a contentious issue that will become even more so, as people argue the merits of paying tax to a state that does not provide services to an out of state retailer, as some Bits commenters argued. Habitually cash-strapped states will probably try to follow New York’s lead, if Spitzer succeeds.

Amazon Says No To New York State Tax

Mike Sachoff — Wed, 13 Feb 2008 22:14:43 +0000

Amazon.com along with other online retailers may be required to collect sales tax in New York State if a proposal by Governor Eliot Spitzer is adopted. Amazon is opposed to such a plan.

Residents currently are on an honor system when it comes to reporting Internet purchases and paying taxes on those items. Online retailers with a brick-and-mortar presence in the state are required to collect sales tax at the time of the transaction.

Other online retailers are not required by law to collect sales tax. The plan by Spitzer would require all online retailers with annual sales of $10,000 or more in New York to collect the state’s minimum sales tax. The state estimates that would bring in $47 million a year.

Amazon vice president of global public policy Paul Misener says the proposed sales tax would be a radical departure from anything that’s being done in the U.S. The company says it’s not against collecting states sales tax but wants the laws to be simplified. It says that there are too many taxing jurisdictions that impose sales tax on different sorts of items.

The New York Times makes a good point about the tax issue. "Walmart.com sells all kinds of things in all sorts of places. And because Wal-Mart has stores everywhere, it has to collect sales tax following all those rules. So does Target.com, and who runs Target’s Web site? Amazon."

From a consumers standpoint no one wants to pay more taxes and from Amazon’s viewpoint it does not want to lose potential customers to brick-and-mortar stores offering more competitive prices. As for the state of New York as with any state government $47 million extra a year sounds pretty good.