Who Should Collect The Amazon Tax?
Erick Schonfeld
55 comments »
A fight is brewing between Amazon and the State of New York over who is responsible for collecting state sales taxes on online purchases. Up until now, online retailers have only had to collect state sales taxes in states where they have physical locations—the same way that catalog retailers are treated. Otherwise, it is up to consumers to declare goods bought over the Internet as out-of-state purchases. (Right. I’ll go find those receipts).
Since most people don’t bother to declare online purchases on their tax forms, the State of New York recently passed some legislation (tucked into last month’s budget bill) known as the “Amazon Tax”. This new law conveniently redefines any Amazon affiliate as part of the retailer, and since there are plenty of Amazon affiliates in New York State, puts the burden of collecting the state sales tax onto Amazon. Clearly, this ridiculously stretches the boundaries of what constitutes Amazon and what does not. So Amazon is suing New York State to overturn he law.
Amazon argues that the law is “overly broad and vague” in its attempt to place the company physically inside the state, and also complains that the law unfairly targets Amazon as opposed to online retailers in general. (Although it does apply to all online sales, not just Amazon’s).
The law, as written, is just a bad law. And it would set a dangerous precedent. Not because New York State shouldn’t try to collect the $50 million in estimated uncollected sales taxes owed to it. But because the law is tortuous in the way it attempts to do that.
A marketing affiliate is not part of Amazon. If I put some Amazon book recommendations on the side of TechCrunch , set up an affiliate account, and readers click through and buy those books, that does not make TechCrunch part of Amazon. It is a marketing arrangement. Just like someone who sets up an AdSense account does not work for Google.
This still leaves the question of who should be collecting state sales taxes on online purchases. On that matter, I’m on New York’s side that it should be Amazon. It knows what state its customers reside in since it has their credit card information and is shipping goods to them. How hard would it be for Amazon to add a sales tax calculator to its checkout cart that calculates a different sales tax depending on the state of the purchaser? The answer is that it wouldn’t be hard at all, but that Amazon doesn’t want to do it because every additional surcharge at checkout results in more abandoned carts due to last-minute sticker shock.
Unfortunately, New York State has no jurisdiction over Amazon, which is headquartered in Washington. So the way to fix this would be a federal law that applies to all retailers. But Congress only cares about federal taxes and is not going to pass a law that will be unpopular with consumers to put more money into state coffers (setting aside the question of whether it can pass a law directing how state taxes should be collected in the first place). Without a federal law, though, more states will pass more bad laws on their own. So, what’s the answer?
Wow, hate to see this issue rearing its ugly head. Can you imagine the tax nightmare it would create for affiliates, let alone for Amazon? And, of course, if it were to spread to other venues on the net it would turn into a real monster.
Cindy
“Unfortunately, New York State has no jurisdiction over Amazon.”
So why don’t Amazon just ignore them altogether?
Oh lordie. The tax man wants to collect MORE so they can spend more? Gawd, I hope whoever in NY in charge of this case gets his nuts cut off.
Welcome to New York’s “I’m broke an everybody else is going to pay” style of business that they’ve been playing for the past 10 years. Honestly, the state needs to start re-aligning it’s priorities, cutting down some of the social programs in place, redefining it’s policies on medicare and medicaid, and redesign the welfare system as a whole.
Disclaimer: I’m from NY and this is another in a long list of examples and reasons that I moved out of the state.
Until the state government gets it’s **** together in terms of fiscal policy, business policy (NY loves business is a lie), and overall legislative health, I’m staying out.
@2, Morgan, Amazon can’t ignore them because the law was ginned up specifically to give New York jurisdiction over Amazon. That is what the lawsuit is all about: jurisdiction.
taxman’s little dirty hands are sloooowly getting into our pockets again and will try to stay there forever…
Sales tax, imho, is a crime because individuals pay with after-income-tax money for their purchases, and producers of goods/services pay taxes on their profits. Thus, the consumer is taxed 3 (three) times: on personal income, covers the profit taxes (included in the price of stuff he/she buys) AND pays sales taxes.
Ah, so easy to just collect sales tax you say. Well if Amazon has to collect on behalf of NY state, then why not all states? simply create a database of all 50 states and the state sales tax. Easy enough… until states raise/lower/abolish/implement tax rates at whatever time they want. I guess you could spare an employee to call the state governments of all 50 states every hour to find out the current tax rate, and enter that into the database. Okay, but what about county and local sales taxes? if amazon collects on behalf of the state, why not the local taxes for the buyers location? I guess a few more employees per state can keep tabs on the local sales taxes for all the thousands of counties that make up each state.
But nevermind all of that. Come audit time, how can amazon prove that it collected enough taxes without handing over a record of ALL its transactions worldwide to prove that it didn’t hide any NY sales. should the NY government have access to all those transaction records?
“How hard would it be for Amazon to add a sales tax calculator to its checkout cart that calculates a different sales tax depending on the state of the purchaser?”
For Amazon? Not to bad. For me? PROHIBITIVELY DIFFICULT. Do you have any idea how hard it is to implement a national tax system that takes into account all the local taxes? You have to get down to the zip code AND street address to address some state’s versions of sales tax.
I work for a company that has physical locations too, so I’m on the front lines for implementation. But if my little site project site had to do this, it’d sink us. There’s no way we could implement that kind of insanity and have any money left for, oh, anything. At all.
Adding NY sales tax to the checkout isn’t as easy as it sounds. The sales tax can vary based on the product purchased, some items are taxes others can be exempt. This also sets a very dangerous precedent since sales tax can also vary by county within the state, not just state itself. NY has many counties do you figure out each one?
The problem is compounded by the fact that you don’t really know if the person buying lives in any state. Just because the billing address on my credit card says NY doesn’t mean I file taxes or live there.
I’m glad I don’t live in NY!
The problem with all of this is that the SCOTUS has already ruled several times (most recently in Quill v. North Dakota)that because of the thousands of localities across the US that charge some form of sales tax, it is an undue burden on businesses to force collection of sales tax where they do not have a physical location. This is particularly the case for small businesses, many of which use sites like Affiliate Junction to generate some portion of their business and therefore could be impacted by this law. While this is a nice attempt at and end run around Quill, I can’t see it holding up in court. Where the longer-term threat to a tax-free internet lies is something called the Streamlined Sales Tax Project. Essentially, this is a project spearheaded by several states that is trying to simplify the various state and local tax rules and create a constantly-updated database such that the burden described in Quill would be reduced. In that case, broad-based local taxation is not only possible, but likely.
@11: that doesn’t sound as bad. I don’t really mind processing tax, like I do for my home state, it’s the madness of implementation that would kill me
Keep this simple.
Say FU to New York and don’t even ship there. I am sure the outcry from the consumers will straighten it out. Amazon put up a page with FONT SIZE: 48 explaining the situation why you can’t ship to NY and let the ass kicking begin.
Thanks.
Erik,
Not sure what planet you live on, but it is a big deal to collect these taxes. It is no big deal to put a calculator there to calculate it, but then you have to fill out tax forms for every state, and open yourself to audits and other beaurocratic nightmares involved with taxes, etc.
Once you open up this pandora’s box you will have to collect taxes for every minor legal entity across the US, (or the globe for that matter) that has some form of a sales tax (cities, counties, etc.) Each of these will have forms and unique rules. The cost of goods will then just keep going up for all of the overhead this adds.
Actually this is a big problem. If you add up all of the tax jurisdictions in the US (state, county, city, local) and consider that some are based on very specific locations (urban enterprise zones with special tax structures) and sometimes change…it comes to about 7500 different jurisdictions in the US. This is quite a burden on any vendor, large or small. The Streamlined Tax bill tried to fix this but it never really got anywhere.
“How hard would it be for Amazon to add a sales tax calculator to its checkout cart”
It is ridiculously hard to collect state taxes. First of all, understanding the laws itself is very hard - what item falls under what category is not always a trivial answer. So you need lawyers to figure that out. They need to communicate with the programmers about the tax laws. This translation is bound to be riddled with bugs.
Worse, NYS periodically declares various types of ‘tax holidays’ which have crazy rules. Something like $50 and below clothes - no tax, but what constitutes as clothes? Are shoes included? What if I buy 2 items on seperate bills? And when exactly do you consider the item ’sold’ - on the date the order is placed or shipped?
States also have a notorious habit of adding taxes to items based on criteria which is very hard to program for. Case in point is California State Law which requires Electronic recycling fee for display devices measuring more than 4″ wide (measured diagonally). Now write a program to calculate _that_ … muhahaha
Point is, it’s not about taxes that amazon worries about - it’s about the insane amount of programming and legal effort required to add this feature and maintain it.
Rather than try to force NY tax collection on out of state companies, they should look to change the law and collect NY sales tax for ALL sales made by NY companies (regardless of the customers location). This would allow consumers to buy from states with lower tax rates (or companies having to eat their state’s higher tax rate). States with lower tax rates will attract more end user shopping and also attract companies to relocate.
Yes, it is the little ma and pa businesses that will get hurt here, not Amazon.
But in terms of calculating and keeping up with all the tax variations across the country, sounds like a perfect opportunity for a company to focus on this and provide it as a Web service to online retailers (if they end up having to collect local taxes).
North Carolina charges 6.75% on all out of state purchases directly from the customer. It is a huge rip off, but nobody seems to complain here. Other states will do the same soon, they already collect huge taxes but spend it crazy.
Oh, and a note for those of you who think there are only 50 state taxes to program into a lookup table. States like CA have different state rates based on location. There are over 7400 different state and local tax zones. And, Shan is right about each item having a possible different tax rate. Here food items specifically used to prepare meals are taxed at 1.5%, but the plates to serve the meal are taxed at 7.6%. It’s a nightmare for just one store to figure out one state’s tax code.
@Erik: There are already several companies doing that, including Exactor, Taxware (a division of ADP) and Avalara. They calculate the taxes, collect the money and handle the remittances.
Tigro, you didn’t go far enough.
Each city/county in each of those 50 states can have different sales tax rates on different types of products. Some of that rate can be state, some county, and some city. So who exactly do you remit to once you have collected the x%?
It’s not just a detail of how much to which jurisdiction (which is massive), it’s a matter of agreement across many levels of government, all with their hand out.
This is a good post.
Erick Strikeiron[www.strikeiron.com] does have a web service for calculating sales tax:
http://www.strikeiron.com/ProductDetail.aspx?p=350
Will all the complainers commenting here go out and play?
Oh and try to find someone whose not a white spoiled brat male.
This is actually good advice. Take heed.
Once this tax is implemented nationwide, can I ask my friends in Oregon to buy goods for me online and have them shipped to me?
*Oregon has ‘0′ sales tax
oh, pals - here in Europe we have VAT already-in-pricetag and pushing counting/colleccting on customers is crime. Yes, it does not matter how big is your business - *wanna run with big dogs? learn how to pee on big trees*
Crazy all around…with every new reach of Uncle Sam into consumers’ pockets, it means new regulations, red tape, lost time for the business owners and more bureaucracy! Nuts!
The transport of goods between two states is interstate commerce and that the fed’s job, not the states’.
Question does this affect Amazon actually selling their own items…or are they also responsible to pay local taxes for letting people list on their website.
i.e. lets say Amazon has a seller, he has 1000 items listed. Hell sells 500 and Amazon collects $6,000 in fees. Are they also responsible to pay the sales tax for that? Or is sales tax only for goods?
Seriously the tax system in this country is too complicated. They should just make it simpler..i.e. Company made $100,000 in revenue? How much did you spend on expenses? Have $40,000 left in profit? Fine:
-Pay 30% to IRS @ 123 IRS Way, IRS Ville, NY, 11324.
-Pay 10% to the state you have your HQ in @ 123 State IRS, State Capital, State, 12345
Right now you have to fill out like 10,000 different forms just to give the government money.
There’s a reason most states have a moratorium on internet commerce still.
There just isn’t a decent way to handle the taxes generated from state to state. Let alone actually collect it from people.
@8 AND ALL YOU MORONS COMPLAINING ABOUT “LOCAL” TAXES:
THIS IS NOT A SALES TAX. IT IS A “USE” TAX. A sales tax = applies to commerce that takes place within the state. A use tax = applies to goods of commerce brought into the state by out-of-state transactions.
The Supreme Court, in National Bellas Hess and Quill, ruled that STATES MAY IMPOSE USE TAXES, exactly like the use tax that NY is attempting to impose on Amazon. IT’S COMPLETELY LEGAL under the US Constitution. The reasoning: to internalize the costs of interstate commerce and prevent small states with low tax burdens (due to small populations and thus small needs) from monopolizing shipping-based businesses.
CITIES AND COUNTIES MAY NOT IMPOSE USE TAXES. So stop whining about all that local tax BS. States have a Constitutionally-recognized power to pass use taxes. Cities and counties do not. (The sales tax is a separate power that flows from the state.)
It’s not hard to impose a use tax. MOST STATES DO NOT HAVE USE TAXES.
The question that seems to be ignored is not so much the sales tax but the affiliates who have registered companies (ie LLC, Inc, etc.) in NY State. Since they are the ones that NY is using it is just as easy to have Amazon cut off ties with ALL affiliates in NY then they can easily continue shipping sales tax free to NY.
Yet, all those affiliates would be out of a revenue stream. I would presume the same would happen across multiple aff programs. So indirectly the state is just hurting small business and hindering corporations from being based in NY. I have a feeling many affiliate business will just move out of NY state if this comes to pass. I wonder if Linkshare is a registered company in NY state? Why on earth would any internet business then want to be a NY registered company?
@Jorge: If you would cease shouting and name calling for a moment, you might learn something. The issue is not the state’s ability to charge use taxes. Use taxes are not at all an issue in this case. This is, in fact, an issue of sales tax. The problem is, people aren’t paying the use taxes that the states have imposed. Thus, New York is trying to claim that affiliate marketing with in-state partners qualifies as nexus for the purposes of collecting SALES tax under Quill. If it was an issue of use tax, affiliate marketing partners would have nothing to do with it.
I’m against the tax, but if someone has to be taxed it should be the SELLERS. They’re making the bulk of the cash and they’re based in the state. It’s their problem. If they don’t like New York’s laws they can move. Amazon, however, cannot avoid this problem by moving–which just seems wrong.
Let me give you a perspective from the point of view of an independent bookseller. My brother is the former owner of Cody’s Books, a internationally known bookseller located in Berkeley. It’s fallen on hard times, and it is now owned by a large, Japanese corporation. Independent booksellers have faced a myriad of challenges from the changing technology landscape as well as from the big box retailers and large chains, and no one can argue that they need to adopt the these things.
But one thing that has been unfair is the sales tax that customers of local bookstores must pay if they buy at the store but are forgiven if they buy from the Internet. This is basically unfair price competition not to mention the lost revenues faced by the city and state.
I think that requiring equal taxation in these instances is the only reasonably policy, and while it probably wouldn’t have prevented the demise of Cody’s, it might have lessened the impact.
I went through this once and ended up with a bill in liabilities. But Bret is right, it is an issue of nexus and sales taxes.
Sad, really. Why is that when governing bodies of developing countries around the world are taking bold steps to increase the reach of internet & volume of online commerce, we obtusely pass inane, impractical, and often ridiculous laws that are surely not going to help consumers or retailers. I wonder if Obama or Clinton chimed in on this particular tax.
“But one thing that has been unfair is the sales tax that customers of local bookstores must pay if they buy at the store but are forgiven if they buy from the Internet. This is basically unfair price competition not to mention the lost revenues faced by the city and state.”
The problem with this argument is that it fails to recognize that the local business receives myriad services from the state and local government that the internet business does not, its customers should therefore pay for the fair share of receiving those services. I’m thinking of government services such as police, roads for the customers to reach the store, education for the employee’s children, Medicaid, etc. The out-of-state internet business on the other hand does not benefit from these services and therefore their customers shouldn’t have to pay the sales taxes in their own state. They do pay for part of the roads used in shipping though gas taxes imposed on the Fedex/UPS trucks.
the bookstore guy’s argument is pretty stupid…sure lets say the seller of a $50 book online doesn’t pay the 7% sales tax if he buys from out of state. But he is forced to pay for having a person package the item, he is forced to go to the post office and drop off his shipment, he is forced to pay for shipping the item, he is forced to deal with chargebacks he is forced to deal with fraud, etc etc.
I am a Canadian who buys from Amazon U.S. all the time. I have everything shipped to a friend’s house in Ohio. Canadians living in Ontario pay 6% gst (federal tax) + 8% pst (provincial tax) = 14% on everything we buy, not to mention 50% personal income tax.
I want to move to Vancouver, Washington. No state income tax in Washington, and if you cross the Columbia River to Portland you can make all your purchases there in Oregon where there is no sales tax.
I just think that NYC trying to say that affiliates are part of Amazon is a ridiculous stretch. Affiliates have a marketing arrangement, and are not owned by Amazon. Look at the Articles of Incorporation of any Amazon affiliate —- are they owned by Amazon? Not at all. Do they file joint taxes in April with Amazon? No. Then they are not owned.
Poorly written law? That’s a shocker seeing as how the NY State Speaker, Sheldon Silver, is not just a typical state government do nothing but is also David “Cease and Desist” Althoff’s fellow graduate of the Brooklyn School of Law…
Ken — Further point on Chris’ already great example. Internet-based stores also incur shipping charges. Thus requiring internet businesses to pay sales tax AND shipping fees puts THEM at a serious disadvantage. Drop the sales tax, and the shipping fee is generally a wash with what you would have paid in taxes.
It’s simple an extension of the rules that have governed existing catalog businesses for quite some time. And if you stop to think about it, a web “store” is really nothing more than an electronic catalog.
Solution: Kill the idiots who make stupid ass laws like this! Or better yet how about we kill all the idiots who don’t vote and whom vote idiots into office in the first place. We are to blame. Most Americans are idiots!!! Education in this country sure does suck!!!
Lordy, the US tax system is incredibly complicated. My mind boggles, the idea of different taxes in a local area and differences between food & clothing and stuff - crikes. Here the shops collect it, we don’t have to keep receipts and all that junk to prove to the tax man, and the rates are national and fairly steady.
So the question then is, who is the “affiliate” that generated the sale? Let’s say a customer clicks on an ad on TechCrunch, which takes the user to Amazon. The user goes away, then comes back to Amazon again the next day through a banner ad on NYTimes.com, that was served up by DoubleClick, then the user goes away and comes back the same day through a direct Ask.com (based in NY) search ad paid for by Amazon and he purchases the item.
In the affiliate marketing world, affiliates are typically commissioned on items where the link was clicked on within a certain number of days that the consumer clicked on the link (could be 3, 4, 5, etc. days after the click). So, for that sale, Amazon will be paying TechCrunch (a revenue share on the sale), NYTimes and DoubleClick - both based in NY(on a CPM basis). And they’ll pay Ask.com on the pay per click.
Such is the integrated world of online marketing. This is going to be extremely difficult to track and a number of major parties will have a major beef with it.
As someone who’s actually implemented national tax systems, it’s a HUGE pain in the ass. You really need to integrate a third party’s tax calculation program into your order processing system because tax issues are so time consuming that only a company dedicated to taxation can really handle it.
A vast majority of multi-state retailers are not fully compliant with ALL the tax laws.
If you have a company that must collect sales tax from every state, there ~7.5k jurisdictions (including state, county, etc) that collect tax on goods.
As people have stated above, these taxes can be both product AND time based. Several states do tax holidays on items. For example, clothing under $100 may be tax free for just the weekend. On top of that, many states collect tax on the shipping fee. So not only do you have your $20 UPS/FEDEX/Whatever shipping charge, there’s a tax on that $20 as well.
To make it even MORE complex there are tax scenarios that occur when shipping between certain states in which cases tax must be collect for BOTH states, usually at different rates for the same time.
Doing this for one state is not that big of a deal. Doing it for all of them will put some businesses … out of of business.
Even then, once you have everything all set up correctly, someone needs to monitor the tax laws in each state because they change ALL the time. To those who think it’s just as simple as calculating a percentage of the price, think again.
Amazon does business in how many foreign countries? And in all those countries they most likely charge sales tax. Americans need to take whatever pole is lodged in their butts and get real.
No “Amazon Tax
This is an issue that’s just been waiting to get the spotlight on it for some time - the fact is that conditions that create a call for sales tax differ from state to state. It’s incredibly complex, and online sellers have to be careful…especially now, when the tight economy has states looking for reasons to go after tax that might be owed.
Helpful links:
An audiocast on the subject:
http://www.mfa-cpa.com/mfa-new.....lesTax.mp3
And a short white paper/Q&A:
http://www.mfa-cpa.com/mfa-new.....-May08.pdf
to #25 nice racist comment, thanks.
to everyone else. keep voting democrat and our pockets will continue to be picked. Ny went dem and the tax craze began. for the little people…………right.