Get ready to start paying sales tax on those Amazon purchases

We’ve spent more time than I’d care to remember talking about the long dormant Marketplace Fairness Act (MFA) here over the past few years. Nothing much ever came of it in terms of new legislation (yet) but one of the key players in that space is obviously Amazon. They’ve fought tooth and nail against the government stepping in and forcing the issue, much to the distress of many brick and mortar outlets.

But now there’s been a major sea change. It may be because Anthony Kennedy recently said he’d vote to allow states to require such collections. Perhaps it was a number of red states imposing online taxes as trial balloons. Or maybe it’s just because Neil Gorsuch is on his way to serve as a tie-breaker on the Supreme Court and he’s widely considered a states’ rights advocate. Whatever the cause, Amazon has done an about face and announced they’ll be collecting and remitting sales tax in all 45 states that charge it. (Axios)

Amazon plans on April 1 to start collecting sales tax in Hawaii, Idaho, Maine and New Mexico, according to CNBC. Those are the last four states in which Amazon had yet to collect applicable state sales tax.

Retailers had long complained that Amazon and other online retailers maintained an unfair advantage by not adding sales tax to purchases. Many states were also unhappy ,, saying that they were missing out on $23 billion in lost revenue, as of 2012, due to online and catalog retailers not demanding sales tax.

Arguments about how the current system works just fine don’t really hold water in terms of total revenue for the states. I mean, they do on paper, but let’s be honest here. How many of you in states with a sales tax unfailingly send your uncollected sales taxes in on every online purchase you make? (Pauses while the sound of crickets chirping fills the space.) And the states have noticed this, shall we say… oversight on the part of shoppers. Even back in 2012 it was estimated that the states in this category were losing out on $23B per year in unrealized revenue.

So problem solved, right? No need for Uncle Sam to step in since the free market is correcting itself. Well… maybe not. Major e-tailers like Amazon and their competitors in the virtual marketplace are going to be struggling to comply with a byzantine patchwork of state and local tax rates, and an equal variety of state and local audit requirements. Absent some sort of standardization and streamlining, keeping up with the plethora of different rates and compliance obligations is going to drive up costs for the sellers. (And we all know who winds up paying higher back end costs in the free market. Spoiler alert: it’s you.)

How do we get around that? I realize nobody wants to hear it (including me) but we may have to take a second look at the aforementioned MFA. The Senate passed it once with the support of a number of Southern, conservative senators, but it never had the legs to go all the way. That’s probably because there remain some fair questions to be answered on the states’ rights front and concerns over anything that drives up consumer costs. But if we’re all going to wind up paying the sales tax anyway (I imagine other e-tailers will follow suit now that Amazon opened the door) perhaps the legislation can be fixed up enough to get approval and provide a standard playing field across the states for all of them.

Bob Goodlatte introduced legislation to do this last year and it was approved by conservative think-tanks and advocacy organizations including the R Street Institute and the National Taxpayers Union. It gets rid of the patchwork of local and state rates in favor of a single rate per state, which means it reduces taxes and regulation as compared to the situation that appears to be coming very soon. But it hasn’t made it out of committee yet, let alone seen a floor vote.

Perhaps it’s at least worth a look.