The tax man cometh (to Amazon)

posted at 2:01 pm on November 25, 2012 by Jazz Shaw

After Black Friday and Small Business Saturday comes Cyber Monday, a day when everyone is supposed to completely fail to rush out to any local stores and, instead, let their fingers do the shopping on their laptops. But as Politico reports, shoppers in a few states who visit Amazon will be in for an unpleasant surprise.

For the first time since the dawn of e-commerce, residents in California, Texas and Pennsylvania will be automatically charged state sales tax at the checkout on Amazon and some other online retail websites. Next year, Virginia and New Jersey residents will join them, followed by residents of Nevada, Indiana and Tennessee in January 2014.

Amazon pulled in $17.45 billion in the fourth quarter last year, or 36 percent of its annual revenue. Critics have argued that Amazon has become one of the top retailers in the country by undercutting them among consumers who knew they could go to the online retailer to avoid as much as 9 percent in sales tax. Amazon disputes the claim.

That makes eight states in the next year or so, and it’s difficult to imagine the tide turning in the other direction. Both Amazon and Wal-mart have been lobbying for the Marketplace Fairness Act in one form or another this year. They will probably be joined by a number of other retailers who do business both in cyberspace and their brick and mortar stores. One example is Lowe’s:

“We lose sales every day — not just on Black Friday — but any time we compete or try to compete on an unfair playing field,” said Scott Mason, vice president of government affairs for Lowe’s, the home improvement chain, which has Black Friday specials on everything from cordless drills to vacuums to artificial Christmas trees. Lowes.com collects sales tax from shoppers in every state that has a sales tax and where the company operates stores and warehouses. “It’s absolutely a position of disadvantage.”

It’s a losing formula to try to talk to conservatives about anything that involves more taxes of any kind, even under the best of circumstances. And when I first heard about this concept of “leveling the playing field’ in terms of sales taxes, I was dubious myself. But like it or not, there are some historical roots in this idea. The original concept of not charging sales tax for online sales came solely from the government expressing an interest in getting people used to the idea of shopping online. It was intended to grow confidence in the computer age for people who were initially suspicious of it. There was never any underlying legal assumption that sales which would otherwise normally be subject to taxation were somehow constitutionally exempt because of this new method of conducting the transactions.

Online commerce is alive and well, and in all honestly likely doesn’t need any preferential treatment to carry on and compete. In fact, some folks are already casting a jaundiced eye on the idea of needing a Cyber Monday at all.

These days, many people are not only warming to shopping on their desktop computers, but also making purchases on their mobile devices. And early indications are that online shoppers aren’t waiting for Monday.

According to payments company, PayPal, on Thanksgiving Day alone, the company saw global mobile payment volume increase 173 percent compared to the holiday last year. The number of global customers who shopped through PayPal mobile increased 164 percent compared to Thanksgiving last year.

Online shopping still holds plenty of attractions and advantages over traditional brick and mortar purchasing. There is the convenience of not having to leave home – and potentially be trampled – to get your gifts. You can also browse multiple retailers at the same time to find the best price rather than just seeing the cost at one store. And the variety of available options will always be massively wider on the web than in the largest box store. Giving them another leg up by cutting prices through not collecting the same sales taxes any other retailer in the same state does seems more than a bit unfair. And no, I’m not any more happy about it than you are.

Update: A reader sends in a link to this, regarding some recent polling showing unanticipated public support for evening sales taxes on online transactions.

The ICSC national poll identified a number of key findings, including:

-59% of respondents support the Congressional effort to require online retailers to collect sales tax at the point-of-purchase, up three percentage points since May.
- 71% of consumers are motivated to shop locally because 68 cents of every dollar spent at a locally-owned retailer stays in the community.
- 82% of consumers who support federal legislation do so because “common sense dictates that if you buy a product online you should pay the same sales tax as if you had bought the same product in a store.”

When told that 68 cents of every dollar spent at a locally-owned retailer stay in the community, seven in 10 Americans opt to shop at local brick-and-mortar stores. “Local retailers invest in their communities and play a significant role in the overall quality of life in the places we call home,” said Betsy Laird, senior vice president of global public policy. “This is clearly an issue that matters to consumers, and we are working closely with Congress to get the bills passed and signed into law this year,” added Laird.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Comment pages: 1 2

Jazz leaves out the reason that Amazon and Walmart want to tax online sales… it will kill much of their Internet-based small business competition. Setting up compliance with thousands of different tax codes all over the country is a very onerous, costly task that will be impossible for many Internet-based small businesses to bear. It’s no problem for big guys like Amazon, however.

Don’t kid yourself thinking that isn’t already the case. I have a friend who has a small side-business in his garage. Sales taxes in California vary by both county and municipality, you need very fine-grained information to know how much tax to charge a resident. He had to buy a license for a software package to keep track of it all. When he goes out to buy manufacturing materials from a store, he has to track how much in sales taxes he paid for each and every purchase so he can deduct that from his profits when quarterly taxes are filed. California won’t refund the sales tax, they’ll only allow it as a deduction, so he has to be very careful in his bookkeeping. It’s all a huge drain on his business, and we haven’t even gotten to out-of-state taxes yet.

Socratease on November 25, 2012 at 6:44 PM

http://www.billsoft.com/wordpress/?p=237

Here is a little more detailed resource I found. Some thoughts…

I also wondered how they were going to force businesses in one state to comply with laws in another that have no authority over them. In fact, there was a supreme court case in 1992 that said they can’t. According to the article it will have to do with states that voluntarily belong to some Agreement SSUTA. Almost all do already. I hope we see no sales tax states dropping out! And then push the issue constitutionally. They would have a huge advantage attracting businesses.

This agreement and the Marketplace Fairness Law is at least attempting to make compliance somewhat reasonable, enforcing one tax entity per state, notice when rates change, etc. Of course it’s not final and there are different versions out there, but it’s something at least they are recognizing and trying to address.

Businesses with gross sales under $500,000 will be exempt. This is not a big number, but it actually gives us part time sellers a huge advantage. I’d rather have no one taxed though. I believe I will still have to collect on sales to buyers in my state or where I have a nexus even under this exception?

rose-of-sharon on November 25, 2012 at 6:49 PM

I have a friend who has a small side-business in his garage. Sales taxes in California vary by both county and municipality, you need very fine-grained information to know how much tax to charge a resident.

Socratease on November 25, 2012 at 6:44 PM

Which is why the taxation should be handled just as if it were a b&m store. Charge taxes that are just as if I was standing in your store, buying the product across your counter. That’s where the sale is taking place – not at my house, and not at the servers handling the transaction. If they truly want to make it “fair” then they would simply treat it as if I were at their place of business making the transaction. Instead we get this nonsense about the company collecting the tax for the state where I reside.

GWB on November 25, 2012 at 7:14 PM

Which is why the taxation should be handled just as if it were a b&m store. Charge taxes that are just as if I was standing in your store, buying the product across your counter. That’s where the sale is taking place – not at my house, and not at the servers handling the transaction. If they truly want to make it “fair” then they would simply treat it as if I were at their place of business making the transaction. Instead we get this nonsense about the company collecting the tax for the state where I reside.

GWB on November 25, 2012 at 7:14 PM

If only it were that simple. It is NEVER that simple.

gryphon202 on November 25, 2012 at 7:30 PM

Having been deeply involved in e-commerce at the beginning with a brick and mortar retailer…I can see the issue from both sides.
Each type of operation has its’ own built in overhead costs out of which a profit must be “eeked”.
The brick & mortar must:
1. Pay for the brick & mortar AND the real estate & other local taxes annually.
2. Pay for store management & staff.
3. Pay for services like water, electric, garbage removal.
4. Build distribution warehouses and pay for SHIPPING to the stores.
5. Maintain inventory control and information systems and people to control the store inventory and ordering.
6. Pay for local advertising & design ads & contract with newspaper/TV.
7. Support local charities/events.
8. Still has to build and support an e-commerce net presence and compete on line.
The on line retailer:
1. Only has to build a distribution/logistics network and staff it along with an e-commerce infrastructure. Customers pay for actual shipping unless that is used as a promotional tactic.

The on line only retailer has a significantly lower overhead cost structure which should enable it to offer lower prices undercutting brick and mortar. Indeed, it can use brick and mortar stores as its’ showrooms, offsetting that disadvantage with price comparison apps for use in those showrooms.

One advantage that stores have been able to leverage is “instant gratification” and no shipping charges by using their store infrastructure to permit immediate pick up and cost free returns.

Of course, this advantage is also offset by the vast selection of goods that can be offered in a category on line without needing to spread inventory and balance it around the country.

In summary…both formats have different cost structures and operating advantages. In no way does the internet only retailer need further advantage supplied by the government. Indeed, it would be in state & local government interest to promote brick and mortar success as this provides jobs in construction, shipping, advertising, and local employment and taxes ASIDE from sales taxes which of course are also a massive source of state/local government revenue.

As much as I love my tax free shopping…it is really counter to the interest of the states and consumers to significantly subsidize the bottom lines of internet retailers at the expense of those who build, live, work and reside in their own states.
***********
BTW
I also note that the same tax software multistate retailers use to calculate rates in different stores & locales is available to internet retailers.
***********
The interesting aspect of all of this is how such collection of taxes on companies without state nexus will be managed constitutionally. THAT is no easy question or task since there is no legal basis for a retailer in say Oklahoma to be forced to pay a tax to any other state for goods he ships there if he has no physical presence there. The following URL supplies the basics of the Marketplace Fairness Act…which is designed to provide a way around current law and stand up to Court scrutiny.
http://www.marketplacefairness.org/what-is-the-marketplace-fairness-act/
I would expect some compromises and exemptions along the way to protect small businesses and startups.

camaraderie on November 25, 2012 at 8:01 PM

used merchandise should be exempt…

equanimous on November 25, 2012 at 8:20 PM

If only it were that simple. It is NEVER that simple.

gryphon202 on November 25, 2012 at 7:30 PM

How very true. In this case, the complications fall on the big guys, though, I think. They have to figure out which warehouse location has to supply you and calculate the tax there. (Yeah, I know you mean that, even if it were that simple, it will never be that simple, but I needed to add that bit, anyway.)

GWB on November 25, 2012 at 8:27 PM

What about the part of the Constitution which stipulates that there are no taxes on Interstate Commerce?

Theophile on November 25, 2012 at 8:38 PM

used merchandise should be exempt…

equanimous on November 25, 2012 at 8:20 PM

There’s several issues with that. It’s not generally exempt in b&m stores. How would you distinguish it? How would you stop the fraud (retailer opens all the packages, takes everything out, puts everything back in, tapes up packages, re-sells)?

GWB on November 25, 2012 at 8:38 PM

Cue the offshore “buying services” that will now erupt to take care of this.

“Gosh! I sent my ‘friend’ in the Caymans some dough, and he just sent me a ‘gift’ of those loafers I wanted. He’s lucky to skip out on the sales taxes, because that would have jacked them up another 8%.”

heldmyw on November 25, 2012 at 8:45 PM

What about the part of the Constitution which stipulates that there are no taxes on Interstate Commerce?

Theophile on November 25, 2012 at 8:38 PM

Which part is that? Do you mean this one?

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

We’re not talking taxes laid on exported goods, we’re talking tax on the sales of said goods. For it to fall under that prohibition, there would have to be an additional tax paid by the out-of-state purchaser above and beyond that paid by a local.

Or this one?

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws

This one is more troublesome, as I think it impacts the “usage tax” imposed on goods bought out of state and brought into your home state.

GWB on November 25, 2012 at 8:52 PM

heldmyw on November 25, 2012 at 8:45 PM

Which is why the point-of-sale should be where the retailer is located, not where the buyer is located.

GWB on November 25, 2012 at 8:53 PM

There are plenty conservatives that work @ Wal-Mart…me for instance.

annoyinglittletwerp on November 25, 2012 at 6:43 PM

I’m not sure what this is supposed to mean. That I must shop at a company that pushes outrageous policies I don’t support in order to contribute to your salary? Sorry, but my meager shopping $$s are not going to impact your job. If you think it will, look for another place to work…

Firefly_76 on November 25, 2012 at 9:06 PM

Taxing the internet is simply another money grab by greedy government out of control. Until the system crashes, as it is doomed to do under our current governance and regulation, more and more greed will appear every year.

JIMV on November 25, 2012 at 9:08 PM

Have not figured out how of all places, here….. there is support for taxes!

Taxed
Enough
Already

gesh

watertown on November 25, 2012 at 9:32 PM

Taxing the internet is simply another money grab by greedy government out of control.

JIMV on November 25, 2012 at 9:08 PM

Ummm, they aren’t taxing the internet with this. They are taxing items purchased – just like the ones you buy at 7-11 or Wal-Mart.

Oh, and they already tax the internet – it’s in your ISP cost, in your landline cost, and in your cell phone costs.

GWB on November 25, 2012 at 9:34 PM

Taxing the internet is simply another money grab by greedy government out of control.

JIMV on November 25, 2012 at 9:08 PM

Mind you, I agree with “greedy government out of control”.

GWB on November 25, 2012 at 9:39 PM

I don’t agree that this has anything to do with fairness. Brick and mortar businesses have faced competition from mail order for 200 years but suddenly people not buying locally is unfair.

One thing is for sure is that if taxes are to be charged it should go to the state where the sale is made. I don’t see any reason why if I buy something online from someone in Texas I should be paying sales taxes to my home state. The concept that people become indentured servants who must pay their home state a tax every time they buy something is just wrong. The tax is on the sale, not the person. The concept of use taxes are just evil. No state says you owe use taxes on consumables you buy out of a state but if you pick up a carton of cigarettes while on a road trip suddenly you are your home state money? That is just wrong.

Rocks on November 25, 2012 at 10:03 PM

The name of the game here is something called “nexus.” If a company in Indiana ships to a customer in Illinois and no agreement is in place to authorize the company to collect and remit taxes to Illinois, then it is illegal to bill the tax to the customer.

Illinois cannot require the collection of Illinois tax unless the Indiana company has inventory, employees or a business location in Illinois.

So not billing sales tax for any out-of-state shipments saves on accounting costs (think of the cost of collecting and paying 44 different taxes every month). Companies can voluntarily collect the tax for the other state if they wish, but if they do not, then the customer is responsible to pay a use tax (usually on the income tax return) to their home state.

Amazon got caught because of its agreements with selling partners in other states or as in the case of Indiana, they obtained special dispensation to not collect the tax in exchange for Amazon providing jobs by locating warehouses in the state.

herdgadfly on November 25, 2012 at 11:39 PM

I don’t agree that this has anything to do with fairness. Brick and mortar businesses have faced competition from mail order for 200 years but suddenly people not buying locally is unfair.

Rocks on November 25, 2012 at 10:03 PM

The difference is in degree. In ye olden days, yes, people ordered things out of mail order catalogs or toll-free home shopping numbers. But not to the degree that they order things online today. E-commerce is eclipsiing brick & mortar retail at a huge rate. Big box retailers are getting killed. And a big part of the reason why is preferential tax treatment for online retailers.

As conservatives, we balk when the government picks “winners and losers” in a bevy of transactions. We hate government regulations that hinder productivity. And yet here, you are asking Best Buy to work with a 5-10% pricing disadvantage over Amazon caused purely by government taxing policy. Isn’t that picking winners and losers?

Outlander on November 26, 2012 at 12:00 AM

Outlander on November 26, 2012 at 12:00 AM

Exactly. “Equality under the law” should be our watchword as conservatives.

GWB on November 26, 2012 at 12:12 AM

Sorry, paying sales tax on top of exorbitant shipping costs puts online retailers at a disadvantage.

OxyCon on November 26, 2012 at 12:29 AM

No, real conservatives who care about fairness wouldn’t be calling on raising taxes, that’s what liberals do, taxes by nature are unfair and will never affect everyone equally. Conservatives would be attempting to lower regulations and sales tax in their states and fighting the constitutionality of having to pay sales tax to other states.

Business profits are taxed, income is taxed, why are voluntarily transactions even taxed? It seems so excessive. The higher sales taxes go the more commerce will go underground and/or convert to barter and trade.

From what I understand eBay is prepared to fight/lobby against the Marketplace Fairness Act and there are some FB groups with great information if anyone is interested in getting involved or learning more. Learn the boring details and put pressure on your reps.

rose-of-sharon on November 26, 2012 at 12:41 AM

Sorry, paying sales tax on top of exorbitant shipping costs puts online retailers at a disadvantage.

OxyCon on November 26, 2012 at 12:29 AM

So, they should get a hand up from the government because, in your opinion, their business model is less advantageous? How is that equal treatment?

taxes by nature are unfair and will never affect everyone equally

why are voluntarily transactions even taxed?

rose-of-sharon on November 26, 2012 at 12:41 AM

Huh? That doesn’t even make sense.

I for one am not calling on anyone to raise taxes – simply to make them fairer (I won’t say whether this legislation does that) and apply equally.

GWB on November 26, 2012 at 12:52 AM

Sorry, I’m on my phone and quoting is a pain so I hope this makes sense.

I consider a new tax as raising taxes. Currently, out of state sales are not taxed on business that do not have nexus in the state of customer. The Marketplace Fairness Act would make these sales subject to a sales tax. No on is proposong lowering any current taxes to balance these new taxes, of course the effect is raising taxes.

Also, *not* taxing something is not giving a hand out from the government! it’s limited government not interfering in the free market, the way things should be and what conservatives actually used to want.

I do not subscribe to the notion of this having anything to do with fairness or equality. It is not like the government is picking particular companies to tax and not tax. It’s not crony capitalism. On line sales across state boarders are completely different beasts than sales that take place in one physical location. Just as income and capital gains are different and taxed differently. Everyone who buys at a physical location is taxed the same according to their own state laws. Everyone who buys online from a company without a nexus in your state is not taxed. Seems fair to me. Don’t like it? Influence your state to fix your state tax law issues, enforce the use tax, whatever. Don’t get the federal government involved in a whole new way to tax and more layers of intrusion and complication.

What crony capitalism is what Amazon is doing. For years they tried to avoid the nexus laws by holding their warehouses in a separate company and used their large team of lawyers to argue that therefore nexus did not apply to them. Now states have finally pushed them legally to have to pay sales tax on sales to buyers in states they have physical warehouses, they want to use their heft and influence to hurt other online sellers who do NOT have physical presences like they do, so they do not have to deal with the competition from small online sellers. That is crony capitalism and it’s working for it and republicans are falling for it hook line and sinker.

rose-of-sharon on November 26, 2012 at 1:23 AM

I live in NY and I already pay sales tax on amazon. Just checked a few of my purchases over the last year and some were taxed and some were not.

Urban Infidel on November 26, 2012 at 8:28 AM

used merchandise should be exempt…

equanimous on November 25, 2012 at 8:20 PM

There’s several issues with that. It’s not generally exempt in b&m stores. How would you distinguish it? How would you stop the fraud (retailer opens all the packages, takes everything out, puts everything back in, tapes up packages, re-sells)?

GWB on November 25, 2012 at 8:38 PM

RFID chips in every cell and molecule, man!

/BUCK FARACK/

Nutstuyu on November 26, 2012 at 8:55 AM

Price is not Amazon’s strongest appeal. The strongest appeal is selection. Dealing with a vendor you know to be reliable is also important.

njcommuter on November 26, 2012 at 9:26 AM

Price is not Amazon’s strongest appeal.

njcommuter on November 26, 2012 at 9:26 AM

Selection is one thing, but price is definitely what attracts me. Otherwise I would buy my books and such through Barnes & Noble. (I don’t buy my music through Amazon very often, because I have a source that is cheaper. Then, yeah, it’s selection that makes my choice to go with Amazon.)

GWB on November 26, 2012 at 9:49 AM

I am in favor of “leveling the playing field” – by eliminating the state sales taxes at the brick and mortar stores, an slashing state budgets to compensate for the tax revenue loss.

Colony14 on November 26, 2012 at 1:25 PM

One comment:
“I don’t see any reason why if I buy something online from someone in Texas I should be paying sales taxes to my home state.”

I agree. I will move to Texas and join in the secession movement!

Colony14 on November 26, 2012 at 1:29 PM

It does annoy the heck out of me when my son wastes an hour of a store clerk’s time, buys nothing, and then comes home to order the product online.

Colony14 on November 26, 2012 at 1:31 PM

Comment pages: 1 2