Amazon Cuts Off Colorado Affiliates Over Taxes
By Tom Ryan
Amazon last week ended its relationship with Colorado-based
affiliates in retaliation of a new state law aimed at getting out-of-state,
online retailers to collect sales tax.
Amazon previously cut off affiliates in Rhode Island and North
Carolina when the states passed online sales tax laws. These state laws argued
an online retailer’s affiliates constitute a presence within the state
and therefore they had to pay sales tax. In New York, Amazon is suing the
state over its law but in the meantime is collecting the sales tax.
But the final version of the Colorado legislation signed last
month removes the affiliate portion by basing its argument on "use
tax" instead of "sales tax." Most states have required for many years that
tax be paid on merchandise purchased out of state and either delivered or
bought home, although it is challenging to collect.
Colorado’s plan forces online retailers like Amazon to turn over
a yearly list of purchases made by Colorado residents. Amazon also will have
to send Colorado customers a yearly tax invoice. Sponsors hope the process
will be so cumbersome retailers simply will collect sales taxes instead.
In its e-mail to affiliates, Amazon called the regulations “burdensome,"
and noted that no other state has similar rules. It added that “they are
clearly intended to increase the compliance burden to a point where online
retailers will be induced to ‘voluntarily’ collect Colorado sales tax —
a course we won’t take.”
The law has quickly turned into a political battle over the
opportunity to recoup billions through e-commerce taxes versus the impact
on an estimated 5,000 jobs in Colorado from Amazon’s counter-move. The affiliates,
many of them small, home-based operations, earn money by using their websites
and blogs to link customers to online retailers. Other online retailers such
as overstock.com are also protesting the move while local Colorado retailers
and many national retailers that pay sales taxes have long maintained that
online retailers have an unfair advantage. Several other states are also
considering internet tax proposals to shore up depleted budgets.
Some Democratic lawmakers, including Gov. Bill Ritter, accused
Amazon of “corporate bullying” for cutting off its affiliates. They argue
that Amazon will still be responsible for either collecting the taxes or
telling their customers to pay it. Some boycotts of Amazon have been launched.
“They’ve done nothing here but spit in our face,” Senate Majority
Leader John Morse said.
But many affiliates, as well as
Republican lawmakers, are seeking a repeal of the act.
“It’s exactly what we said would happen. They’re going to put
people out of work. It’s a game of chicken with people and their jobs, and
they lost,” said House Minority Leader Mike May, R-Parker.
Discussion Questions:
Do you support e-commerce sites being tax-free or should e-tailers be
required to pay the same levies as physical store locations? What do
you think of Colorado’s "use tax" rather than a sales tax? What do you
make of Amazon’s response?
Well I am never one for paying taxes when I don’t have to, but I still think that if someone is buying a product from a business that has a presence in their own state or province, then it is not unreasonable for the government to require them to pay sales tax. It should not matter whether the web site, call centre, or sales centre is somewhere else.
But at the end of the day, nothing beats “cash” deals for avoiding cumbersome tax hassles.
As a consumer I’m a big fan of not paying sales taxes for online shopping. However, to be fair, it really doesn’t make sense that online shopping is tax free.
Is it ever a good idea to charge taxes when you never had to in the first place? Is everyone aware that in Canada we will be moving to a combined federal and provincial sales tax system in the summer? Yep, add on another 13% to whatever we buy in the coming months. Just another shot to the retail industry in Ontario. It’s the price we pay for a strong social infrastructure.
I cannot imagine why Amazon and similar companies should not pay the same taxes as their competitors who provide jobs within the state.
Fifteen years ago, when e-commerce was beginning to grow, it helped to support that growth through waiving sales taxes. Many years later, e-commerce is soaring and the programs exist to easily collect and allocate sales tax for states and cities. As much as consumers like a tax “holiday,” with many states in such bad financial shape, the time has come to collect sales tax.
Any kind of tax is a bad tax and is bad for business. Perfect example is this silly tax in Colorado. It has already deterred Amazon.com from operating. Out-of-state, online retailers should not have to be taxed. Do the police or fire departments need to be called to protect them? Do they use up valuable land, water, and sewer resources? Are consumers using the roads to shop at their stores? This sounds more like extortion rather than taxation. Good on Amazon.com for standing up to these bullies in the Colorado government.
Sales tax is a tax on commerce within a state. The people of that state voted to have a sales tax (either directly or indirectly through their representatives) in order to pay for services that state provides. With that understanding, we can only assume, the people want there to be a sales tax in their state.
While the sales tax is forwarded to the state by the seller, the sales tax is always paid by the buyer and never paid by the seller. Amazon and other e-tailers will not lose a cent by paying sales tax.
What they will lose is a competitive advantage versus brick and mortar retailers within given states which translates to a price advantage of whatever percent the sales tax is levied at. In essence, by not collecting sales tax, the state is subsidizing the e-tailer.
The idea that it is a burden for e-tailers to collect sales taxes is ridiculous. The data exists. What e-tailer doesn’t know what their sales are in a given state? It is a larger burden for small brick & mortar retailers to keep track of sales taxes.
Amazon is a great retailer and will win in the retail battle of the future. But, they will lose on this issue eventually. Get real now and stop the silliness about something that is so clear-cut.
I think that sales tax for all companies whether online or not makes sense. If strictly an online corporation, why not base sales tax on the dollar amount purchased? Meet half way. Not sure of the logistics though, but say max purchase per customer, each month, $100.00 or so. This should help local businesses remain competitive.
The world, she is a changing and we need to be changing with it. Now it is time for government to look at the way they tax us and figure out a fairer and easier system to collect.
It looks like all of our taxing and spending systems are broken.
The idea of online sales not being subject to sales taxes made a lot of sense when e-commerce was in its infancy. But now in many categories, it has become a mainstream source of doing business. As much as I would hate to see it end, it is probably the right thing to do to end its free ride.
I believe all retailers should be on the same playing field and support the community that is buying their products. I do buy from Amazon and I pay the tax on my state income tax. I live in Oklahoma and there is a box on the state form for that. I don’t like paying any more tax than I should and if the states and city can lower the tax rate that would be great. On the other hand I have an internet site that sells and don’t want any more forms to figure out so if the states can get together and make filing and remitting easy then they would all be ahead of the crunch they are in now.
On another note, I think churches and farmers should pay tax to the retailer and get the part that is tax exempt back from the state instead of having the retailer police it.
It’s a state’s rights issue as well as a corporate rights issue. States have every right to attempt to collect a tax and retail corporations have every right to choose which states in which to do business.
If it’s possible, I support both sides of this issue, that is until it is resolved across all 50 states. It’s really an interstate commerce issue, unresolved.
Colorado residents have a voice and definitely a market. However, so does Amazon. If they want Amazon more than the tax, they can rise up to their legislature. If they want the tax more than they want Amazon at this point, they can collect it from others and exclude their residents from the marketplace. It’s that simple.
It’s not as simple as if I ordered something from Amazon while I sit in Michigan and therefore should pay Michigan tax. Why shouldn’t the tax go to where Amazon sits? Or, why shouldn’t the tax go to where the product is shipped from?
How this is resolved could cause an unnecessary migration of online retailers. That shouldn’t happen. However, as business and high income individuals bear more and more of the overall tax burden, that shift could be unavoidable. It already is impacting states like Michigan and New York.
When the whole state sales tax thing came up several years ago and eventually went before the Supreme Court, the argument was that collecting and adhering to all the different sales tax regulations was too burdensome. Since then, there have been several efforts by the states the “harmonize” their sales taxes without final success.
Maybe the answer here is an “Online Sales Tax” administered by the Federal Government and applied to all internet sales. As more and more of our economy becomes based on virtual services and internet sales, it is going to become more important for states to get some revenue from those transactions. The big advantage of federal laws (yes, there is an advantage) is that they are consistent. Instead of needing to understand individual state laws, there would be one online law that would apply to all sales not completed in-state.
As far as the states are concerned, a little revenue is better than none. As far as online retailers are concerned, it becomes pretty easy to administer. Finally, brick and mortar stores would no longer be competing against online retailers that do not charge sales tax.
Does this make it a little harder to administer an online store? Yes, it does, but then maybe there should be a little bit of a hurdle in order to prevent someone from acting on a whim.
“An unlimited power to tax involves, necessarily, a power to destroy.” Daniel Webster and Chief Justice John Marshall. Growing taxes grows government. Like we need more of that!
I’m astonished that any controversy remains on this decade-old issue. State and local sales tax is the law. Period. Catalog and online retailers have been able to dodge the law in the past because they argued that the mechanism for tracking and calculating it across multiple municipalities was too burdensome. There was also a cult of mysticism around virtual retailing that is no longer warranted.
This is no longer the case, as there are numerous Web services today that maintain the requisite sales tax databases and can be seamlessly plugged in to any online shopping cart or call center terminal. Amazon is not entitled to a sustained competitive advantage due to its business model. A sale is a sale, and the recipient of a delivered purchase should pay tax based on their local code. The states and towns of America need these revenues desperately, and if the playing field were leveled, individual affiliate sellers would be no better and no worse off than they are today.
For me, the interesting part is the chess game being played.
“Pay a tax,” the state government says, “or you won’t do business here.”
“Okay, I accept your terms,” says the retailer, “I won’t do business here.”
“But that’s not fair,” the state government says, “you have to stay and pay. Otherwise, you are a corporate bully.”
Whether or not the tax in Colorado is appropriate is not the issue. If there is not a uniform tax on online purchases, online retailers will simply pick the most advantageous areas to do business in the hopes the lack of service will make the voters rise up to regain what their neighbors up the road never lost.
The other aspect of this is that state and local governments are going to be looking for creative ways to refill their empty coffers. Retailers are going to be a frequent target–labor law compliance, tax laws, transportation fees.
It is going to get worse before it gets better.
What I think should happen and what is going to happen are two different things. States are STRAPPED for revenue and this is just the tip of the iceberg for things to come. More and more states will be doing this.
I share James’ astonishment that this is still an issue; but it has nothing to do with collection not being a burden (though that argument may have been made, it had little or nothing to do with the legalities of the issue) and everything to do with the law being the same: companies cannot be forced to collect sales taxes within a state unless they “have a (physical) presence there.” Period. Whether or not “affiliates” constitute such a presence I don’t know, since so little info is provided about them.
Is this a competitive disadvantage to intrastate sellers? Of course it is…but it is an issue for Congress to deal with, not Colorado (or any other individual state).
As for the tax-phobes who complain that Amazon does not use Colorado’s fire, police or sewer servcies: no, they don’t…but the Coloradans who actually pay the tax certainly do.
As a Coloradoan who voted for Bill Ritter, I am happy with his signature on this bill. However, I think our legislators got ahead of themselves: Colorado is too small of a state to start a trend like this. It has to come from California, New York, Texas and Florida (or some combination thereof) first before flyover states like ours can be so bold with robber barons like Jeff Bezos.
For those of you who think taxes are a bad thing, I hate to burst your bubble but there’s really no way to return to the nineteenth century. Government services, much maligned in this very conservative country, are a vital component of our ability to compete with other countries for the best talent available. If we keep gutting our local, state and national governments’ ability to function by finding ways to starve them, we will hasten our national decline. The best and brightest from around the world will no longer come to our shores, and the best and brightest Americans may find reasons to move elsewhere. I pay my sales taxes happily, and I never shop online. It’s the patriotic thing to do.
Use taxes or even sales taxes that try to misrepresent transactions just because the person who lives in the state is the receiver of the merchandise is flat-out wrong. Having personal information turned over to tax authorities by a 3rd party is also wrong. Transactions done in a location other than where the transaction occurs should have no affiliation with any other state or local agency of any kind.
Amazon is exercising their right as a business. They have a choice of who they deal with and they have chosen not to deal with companies in Colorado.
One of these days (and I don’t think I will live that long) government is going to realize that they really don’t have control. Every business has a choice of where and with whom they do business. In this case, Colorado has chosen to impose its will on a business. The business finds this burden onerous and has decided to take a course of action that avoids the problem. Now, people in the state of Colorado will probably lose their jobs. Governments and their legislators must remember that in a global economy, any business can move from one location to another with much more ease than in the past. For instance, with much production taking place in China, a company headquartered in Denver can move its headquarters to Canada, Mexico, Paris or Hong Kong. This often only involves moving some computers and a few key employees. We have seen great American companies like GM and Ford set up production plants in Mexico and Canada. These plants and jobs could have been set up in the USA, however, US rules, regulations, and union entanglements would have severely depressed profits.
Criticize them all you want, but you do the same thing when you shop for groceries, or buy a house. You try to get all you can for your money. This is your right and the right of every business. If you want to penalize a business for operating in your city, state, or country expect to eventually lose that business and its employees and the taxes. You end up with a lot of empty office space and stores. Money always moves to where it is treated best.