Two states strike down “Amazon tax”

posted at 12:31 pm on April 29, 2012 by Jazz Shaw

Last winter we opened up a discussion on the Marketplace Fairness Act and the idea of the federal government forcing companies such as Amazon and eBay to collect a sales tax on internet sales. The response was almost uniformly negative here, with one of the most popular proposed alternatives being the idea of letting the states deal with the issue themselves. I have to admit that the idea carried some appeal for me as well, at least at first glance. And it turns out that several states had already begun exploring precisely such a solution.

As you would expect, the internet retailers immediately got together and began challenging these new state taxes in court. The first two to make it to the top of the docket were in Colorado and Illinois. The results were pretty much the same. First up, Colorado.

A federal court has thrown out a 2010 Colorado law, which had already been temporarily blocked in federal court last year, meant to spur online retailers like Amazon to collect state sales tax. ‘I conclude that the veil provided by the words of the act and the regulations is too thin to support the conclusion that the act and the regulations regulate in-state and out-of-state retailers even-handedly,’ U.S. District Judge Robert Blackburn wrote in his opinion. The law and the rules to carry it out ‘impose an undue burden on interstate commerce’ and are unconstitutional, the judge wrote.

The story played out pretty much the same way in Illinois.

A Cook County Circuit judge ruled against the state of Illinois in its attempt to tax online sales from out-of-state companies.

Judge Robert Lopez Cepero today ruled that the 2011 law doesn’t pass muster because simply having an affiliated company in the state that makes sales or refers customers to an online retailer doesn’t create enough of a presence, or nexus, for tax purposes.

He also ruled that the Illinois law is unenforceable because of a federal Internet tax moratorium that runs through 2014.

So where do we go from here? If there is no constitutional path to allowing the individual states to collect sales tax, then it would seem that only two possible solutions remain. First, we could simply never have taxes on interstate sales. This is obviously a very popular answer, since nobody likes paying taxes and we all enjoy getting a good deal shopping over the internet. But the states are seeking ways to address a couple of very real problems. They need the revenue in many cases, but they are also trying to respond to the needs of brick and mortar stores who feel that they are being forced to fight on an uneven playing field.

Is a federal solution like the Marketplace Fairness Act the answer? It’s going to be a hard sell convincing conservatives that “more taxes” is ever the answer to anything, even if the money is supposed to be channeled to the states. But this situation needs to be settled sooner or later.


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If the states spent as much effort on making their operations efficient and cutting out the waste and duplication as they do worrying about hounding some new sucker as a source for extra revenue, they would have enough to do what they need to do.

But the idea that a federal sales tax would be easier to collect is STUPID. Individuals are audited at a miniscule rate, the rest comply because they are intimidated: the penalties far outweigh the possible few hundred or thousand they might be able to cheat for. But start telling businesses to collect an EXTRA 23% (or whatever higher number is actually required after the idiots exempt half of the economy), and lots of people suddenly have huge incentives to cheat.

Ask state tax auditors if they collect all they are due now – and that’s with lower state rates.

Adjoran on April 29, 2012 at 11:34 PM

Tax, tax, tax.

Typical government bureaucratic b.s., corruption, incompetence, waste, graft, fraud, and lies. If the brick-and-mortars can’t compete then lower their taxes, don’t raise others.

Stupid government morons.

AttaBoyLuther on April 30, 2012 at 12:37 AM

Frightening to see some so-called conservatives here advocate for this type of taxation “leveling-of-the-playing field” based on “fairness”.

Where have we heard that argument made before?

spinach.chin on April 30, 2012 at 1:22 AM

But the states are seeking ways to address a couple of very real problems. They need the revenue in many cases, but they are also trying to respond to the needs of brick and mortar stores who feel that they are being forced to fight on an uneven playing field.

Kinda like auto companies with unions thinking they are on an unfair playing field?

ignatzk on April 30, 2012 at 3:36 AM

But the states are seeking ways to address a couple of very real problems. They need the revenue in many cases, but they are also trying to respond to the needs of brick and mortar stores who feel that they are being forced to fight on an uneven playing field.

Kinda like auto companies with unions thinking they are on an unfair playing field?

ignatzk on April 30, 2012 at 3:36 AM

The difference is that this time it’s the liberals at Amazon and other internet companies that are destroying businesses often run by conservatives in red states.

Then again, the government has long been responsible for ensuring an even playing field through interstate commerce laws and controlling monopoly power.

bayam on April 30, 2012 at 5:28 AM

A company like Schwans, why would they have to collect sales tax if I order via the internet? Their faq says “Schwan’s Home Service charges sales tax in accordance with local and state laws. Schwan’s Home Service will add the appropriate food sales tax to your total.”

What does “doesn’t create enough of a presence, or nexus, for tax purposes.” mean? What determines whether a company has created enough presence to collect taxes, and wouldn’t it benefit the company to keep their presence below that line?

Buddahpundit on April 30, 2012 at 6:46 AM

As a business owner with customers in 28 states I complain all the time about sales taxes. But not about states need for revenue, which I recognize is legitimate, even dire in some cases. But sales tax is terrible.

Commenters here are right to point out that state governments need to get spending under control, but no one would dispute that (with a few big exceptions, like deferred compensation arrangements for future healthcare and retirement), most state spending is at least pretty visible to the voters. Federal spending is different, and more like a runaway train thirty seconds from plunging off a mountain bridge and into calamity, but that’s not the issue here.

But states do not “collect” sales taxes, I do. I am enslaved to the states in which we sell as a conscripted tax collector. I receive no pay for this. Instead, about every five years (more often for unscrupulous and desperate states like New York- the worst of the worst, Illinois and California, state “auditors” (really third party, contracted bounty hunters) show up at my door, demanding a cubicle, electricity, phone, light, coffee and whatever conversational gossip they can muster, and examine our record of galley-slaving on their state’s behalf.

Then they “propose” small adjustments, ie, voluntary additional payments, usually based on fantastical readings of the tax code for that particular state, and leave. To protest their fictions, we have to pay the tax and appeal to have it returned to us. Of course, the underlying transactions are long in the past, so we can’t go back and ask the customer to pay their taxes, we have to pay it ourselves. In Illinois four years ago we had to pay about $26,000 of tax, then appeal, and after winning we were told the state didn’t have the money to pay us back and we “could just deduct it from future payments to be made”. Well, ok, if you say so mister slavemaster.

So, screw the scummy sales tax. Collect it yourselves states. If you screw up, leave small business out of it! I’m all for Amazon here in this instance, and local state companies should aspire to join them.

MTF on April 30, 2012 at 6:48 AM

It is my feeling that they should collect sales taxes for the states in which they do business, but at perhaps at lower rate. In South Carolina Amazon is now building a huge distribution center. Therefore they will have nexus in South Carolina. The State of South Carolina first had to offer enormous economic benefits to lure Amazon to build the distribution center in South Carolina, which is common. And, then Amazon demanded that they would be able to retain their right not to collect state sales tax. We all love lower prices, but when a large company like Amazon starts throwing their weight around to exclude them from collecting sales tax as in a situation such as we have in South Carolina, I think it is unfair. The Mom and Pop stores and even other large brick and mortar businesses are being dealt a bad deal.

In South Carolina the problem has gotten so bad that when you file your income tax return you are supposed to report your out of state sales and pay the sales tax. I am one of the few honest ones that do.

I will also add that I believe that sales taxes have become too high………..but we have them.

SC.Charlie on April 30, 2012 at 8:22 AM

Oh, I don’t know. I often end up NOT buying something online because the Shipping Charges are higher than the sales tax I would pay if I bought the item in town. Last night I was about to buy three books on Amazon and the shipping topped out at $8.83 on a $30.00 order. That essentially added a little over $2 to the price of each book. No sale. E-tailers don’t want sales tax because they’d have to lower shipping charges and they’d lose money.

IdrilofGondolin on April 30, 2012 at 8:23 AM

Oh, I don’t know. I often end up NOT buying something online because the Shipping Charges are higher than the sales tax I would pay if I bought the item in town. Last night I was about to buy three books on Amazon and the shipping topped out at $8.83 on a $30.00 order. That essentially added a little over $2 to the price of each book. No sale. E-tailers don’t want sales tax because they’d have to lower shipping charges and they’d lose money.

IdrilofGondolin on April 30, 2012 at 8:23 AM

They’d have to lower shipping charges to customers to complete — as Amazon.com has already done with their “Super Saver Shipping” program. It’s just a question of whether a company can pass those costs on to consumers and remain financially viable.

By the by, doesn’t Amazon have super saver shipping (free) for most orders over $25.00? Or did your items not qualify?

gryphon202 on April 30, 2012 at 8:33 AM

But states do not “collect” sales taxes, I do. I am enslaved to the states in which we sell as a conscripted tax collector.

‘MTF’s comments at 6:48 this morning bear a second read, IMHO. He’s on point and says it well… this back door effort to increase state revenues by other peoples sweat is going to effect us all some day.

Well said MTF!! Hear Hear!!

BTW, I cut & pasted your comments to my Pecozbill.com blog! Thanks…

Pecozbill on April 30, 2012 at 9:13 AM

The states don’t NEED revenue, they WANT revenue…money that they don’t deserve. They need to cut spending. This is nothing more than a greedy money grab.

TXJenny on April 30, 2012 at 10:41 AM

What the heck? Why is nearly everyone on this thread arguing like a bunch of liberals, referring to emotion instead of logic.

The Law of the Land is plain and simple…

US Constitution (Article I) Section 9 Clause 5

No Tax or Duty shall be laid on Articles exported from any State.

The Rock on April 29, 2012 at 12:55 PM

IT’S UNCONSTITUTIONAL! PERIOD!

(“The Rock”… Thank you for being the only sane voice on this thread!)

dominigan on April 30, 2012 at 11:03 AM

No new taxes. Period.

Cut spending, downsize gubmint.

petefrt on April 30, 2012 at 11:23 AM

US Constitution (Article I) Section 9 Clause 5

No Tax or Duty shall be laid on Articles exported from any State.

The Rock on April 29, 2012 at 12:55 PM

The common meaning of “export” then and now was to a different country, not from one state to another.

AngusMc on April 30, 2012 at 11:48 AM

Come on. As if the only advantage Amazon has over a brick and mortar store is not having to collect sales tax. Ridiculous.

The simple fact is that for things that don’t require an on-site viewing to purchase, the internet will ALWAYS provide the better deal, and not by a little, by a LOT. Burdening online retailers with having to not only collect 50+ different sales tax regimes, but then file and submit those sales tax transactions is IDIOTIC. There are tons of ways for states to increase their revenues. Taxing internet sales is NOT one of them.

deadrody on April 30, 2012 at 11:57 AM

Been many places around the country, except for our (DISD and Parkland) local property tax, I prefer the Texas way.

cozmo on April 29, 2012 at 12:59 PM

Sometimes I think some form of state income tax in return for dramatically lowered property tax would be more equable when it comes to retired people…

But that’s using the tax code for social justice, hopenchange, etc.

Sales tax is a voluntary tax and the flattest one out there.

CorporatePiggy on April 30, 2012 at 12:48 PM

I think they should leave this one alone. Internet shipping and handling pretty much equates to in state sales taxes. If you let the states add sales tax to S&H you put the internet merchants at a major disadvantage. When you add the cost of implementing something like this it would favor the in state merchants even more.

duff65 on April 30, 2012 at 1:54 PM

What the States want is for the retailer (i.e. Amazon) to collect the sales tax that would normally be collected at point of sale by an in-state retailer. Since Amazon, for example, is usually not in the State in question, the effort is to try to treat Amazon as if it were.

Normally each State that has a sales tax or equivalent (Hawaii has a general excise tax not a sales tax, but it functions similarly enough) also has a Use tax. As I understand the idea, when you buy stuff from out-of-State you, as the consumer, are expected to file and pay the Use tax because that “levels the playing field” between in-State and out-of-State retailers. But there is no convenient way to pay the Use tax for the casual consumer, and no easy way for a State to know who bought something for retail delivery in the State, so enforcement becomes very difficult especially for what would be small amounts.

Then sales taxes often are aggregations of a number of smaller sales taxes so what the rate is depends on where the customer takes delivery. One can see how tracking EVERY change in a sales tax, in order to have the correct rate, would be a big headache to a national mail order setup.

Russ808 on April 30, 2012 at 4:32 PM

we moved from Illinois last April-and your comment is the first I’ve heard of THAT law.

annoyinglittletwerp on April 29, 2012 at 8:00 PM

It is the law. Been on the books for some time now, however, when they passed the Amazon law they added it as a specific line on the tax form rather then as an add on form.

As a matter of fact it is a specific question now on all tax software (last 2 years) including the state’s E-file.

LifeTrek on April 30, 2012 at 5:34 PM

they are also trying to respond to the needs of brick and mortar stores who feel that they are being forced to fight on an uneven playing field.

What’s stopping the B&Ms from having their own online presence? Smart businesses do those things anyway because it’s good for business. They don’t need government protection to succeed.

infidel4life on May 1, 2012 at 4:14 AM

In South Carolina and I suppose other states, when you purchase a car you don’t pay the sales tax on the car in the state where you purchase the vehicle when you immediately transport the vehicle to your home state. In South Carolina you have to to pay the sales/use tax to the state of South Carolina. Also, in South Carolina when you buy a car from someone else, a private transaction, when you register the car you have to pay sales/use tax on the car.

I know of a Internist who ran a fair sized office in South Carolina. The South Carolina Department of Revenue did an audit on his office. And, then sent him a fairly good sized bill. What he had been doing was buying supplies across state lines and not paying the sales/use tax on those goods. He was just a normal physician. He didn’t know the stupid laws of South Carolina about the sales/use tax. They also made him sign a letter, saying that he would not do such a horrible thing in the future.

SC.Charlie on May 1, 2012 at 3:12 PM

In Amazon’s case the greatest insult is to a retailer such as Best Buy. People actually go into Best Buy and find the huge screen TV that they want buy ask the floor people a ton of questions and then before they leave the store order the TV from Amazon. Best Buy has become Amazon’s showroom and a sucker for investing billions on a brick and mortar business model.

SC.Charlie on May 1, 2012 at 3:17 PM

What’s stopping the B&Ms from having their own online presence? Smart businesses do those things anyway because it’s good for business. They don’t need government protection to succeed. – infidel4life on May 1, 2012 at 4:14 AM

Nothing, but Amazon has no brick and mortar buildings and businesses, which cost billions to build and operate, like Best Buy, are becoming their showrooms. What happens when all the showroom businesses for Amazon go belly up. Where are you going to actually get to look at the product you want to buy and to ask some relevant question before you buy it?

SC.Charlie on May 1, 2012 at 3:24 PM

As a practical matter, it is impossible for small businesses to comply with local sales tax rules in (at least) 10,000+ tax authorities in 50 states.

Kansas, in a moment of insanity, imposed “destination sourcing” within the state. This means, instead of merely collecting Kansas Sales Tax at my local rate, which is easily found, I theoretically must:

1. Obtain my customer’s complete address with zip code.
2. Obtain additional information to determine what other sales tax components might apply (are you within city “x”? or “are you within school district y”? or “are you within special tax district z”?)
3. Try to determine the applicable tax rate, recognizing that the Kansas Department of Revenue’s own web site cannot accurately provide this information.
4. When filing sales tax returns, fill out a form having up to 1800+ lines (one for each different taxing entity) and columns defining purchase price, taxing entity code (if KS DOR can actually provide it), State tax, county tax, and local/other tax).

This entire exercise makes selling anything in Kansas outside your own tax district uneconomical.

There are large software companies which are pushing legal requirements which would force all but the largest companies to use their software to determine sales tax, at a cost of at least $1500 per POS terminal. The force is provided by “sweetheart” provisions in their proposed regulations which would grant the seller immunity from sales tax claims IF (and ONLY if) he used one of these “specially favored tools” to figure the tax. Of course the software vendor also gets a piece of every sale: a fee which is denied to the seller (in most places) for the exact same service.

Out-of-state Internet tax is therefore simply a SCAM by which money is diverted from thousands of small sellers to a few favored companies who receive preferential treatment.

The only truly “fair” method to impose an internet tax would be to impose a federal tax at a uniform national rate, by uniform national rules and then require the feds to distribute 100% of it to the states. Of course this could never work because:

1. The states would never relinquish their sovereignty sufficiently to allow setting a uniform national rate by uniform rules.

2. A huge amount of the “tax” would simply disappear into the federal maw: the states would never see it.

3. The tax would have the immediate effect of discouraging ALL internet sales unless the exact same requirements were imposed on all sales, including face-to-face in-state sales by in-state companies.

4. Everyone knows that any new tax would simply turn into another layer of federal government waste, mismanagement and corruption.

As some wag commented “If the government controlled the Sahara desert, there would soon be a shortage of sand!”

landlines on August 3, 2012 at 11:53 AM

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