Amazon’s CEO Calls for Federal Action on Sales Taxes
Amazon has already pulled up stakes (or refused to put them
down, in some cases) in several states over disputes involving the collection
of sales taxes. It’s
not that the company refuses outright to collect taxes; it does so in Europe
and elsewhere, but it refuses to deal with measures it views as unconstitutional
under current federal law.
Appearing yesterday at the headquarters of Consumer
Reports, Mr. Bezos said, “In
the U.S., the constitution prohibits states from interfering in interstate
commerce.” His
company and others should only be required to collect sales tax in states where
they have a physical presence or “nexus,” he said. Amazon rejects
the argument that affiliates represent a local presence for the e-tailer.
Mr.
Bezos also disputed the notion that his company plays by a different set of
rules from brick and mortar retailers that sell goods online.
“Our point-of-view on this is that we should simplify the sales tax
system, and we’ve been insisting on this for 10 years. We support the
streamlined sales tax initiative, and 22 states have signed on. The right way
to fix this is with federal legislation,” Mr. Bezos told Consumer Reports. “Sales
tax is very complicated. We’re no different from big chains of retailers.
They don’t collect sales tax in states where they don’t have nexus
either. So everyone is following the same rules.”
While Mr. Bezos expressed
a willingness to collect sales tax where Amazon has a physical presence, the
company recently pulled plans to open distribution centers in South Carolina
when it was unable to get legislation passed that would exempt it from doing
so.
The House in South Carolina voted 71 – 47 to reject a tax exemption for the
company. The state’s new governor, Nikki Haley, did not support the exemption
that was negotiated by her predecessor Mark Stanford.
“As a result of today’s unfortunate House vote, we’ve canceled
$52 million in procurement contracts and removed all South Carolina fulfillment
center job postings from our (web)site,” Paul Misener, Amazon vice president
for global public policy, told The State newspaper at the time.
Discussion Questions
Discussion Questions: Do you agree or disagree with the position that affiliates represent a local presence or nexus for Amazon? Is Jeff Bezos correct that federal legislation is needed to clarify when companies are required to collect sales taxes for states?
Tax legislation should have been enacted 20 years ago for internet sales. The lack of taxes has created a playing field decidedly tilted away from bricks and mortar. It isn’t a government thing or constitution; Amazon and the rest are struggling to keep the perk they’ve had when governments didn’t seem to need every dollar.
Web sales have progressed to the point that sales tax should be collected. States are facing financial crises and need the revenue. Computer software exists that could easily calculate the amount of tax due on a purchase. The federal government should take action to secure this revenue for the states.
Physical presence is becoming an outdated concept in retail, and while the “fairness” argument is interesting, it will end up being largely irrelevant. The reality is that most states are in difficult to dire financial condition and the temptation to add this sales tax revenue to their coffers will prove irresistible. While the South Carolina actions (and notable others) show Amazon is not giving up, I suspect their best case scenario is some overall change along the lines of Mr. Bezo’s comments.
With apologies to “Alice in Wonderland,” the time has come, the walrus said, to talk of many things but most important is sales tax.
It’s time to create a level playing field–and local taxes are being eroded. Sales tax should now be collected on Internet sales. That sector has been well developed and accepted and is now getting mostly a free ride while the Brick and Mortar stores are not.
Amazon is playing by the rules, albeit stupid rules. We need a federal law to ensure parity among all retailers, regardless of channel.
Sales tax collection is a nightmare for every retailer. This is especially true for retailers with a wide product line. Every state is different as to what products are taxed and what products are not. Further, it is ever-changing based on the whim of the local government. Additionally, some cities and counties have sales tax on top of state sales tax and there are differences here as well. It would take a team of people just to keep an internet retailer current. I am not aware of any retailer collecting sales tax outside the state they have stores in, so why would it be different for interstate sales on the internet?
This issue is not going away anytime soon. Cities, counties, states and the federal government all have spending problems. For some unknown reason, except for professional politicians’ job security, these government groups believe the solution is to increase revenue. Under current rules, states cannot win on this issue. Here is another example where government is years behind the real world.
Why should amazon.com be exempt from collecting sales taxes? They are a multi-billion dollar “retailer” and they should be required to follow the same rules as other retailers. I agree with Bob Phipps that collecting sales tax should have been mandated for Internet merchants twenty years ago. Collecting sales taxes is simply a part of how brick and mortar retailers must operate their businesses. Why should online retailers be exempt? It’s about time we stopped this nonsense!
I have no sympathy for Amazon in this case. Nor do I think it is right that a company as successful as Amazon and GE can afford to hire staffs of attorneys to find loop holes allowing them to pay little to no taxes. I wish I had that luxury, but sadly I don’t. April 15th comes and the check goes.
We are a Canadian organization who helps a number of clients who are establishing e-commerce/online retailing websites in the US. It was complicated enough to understand the US tax system before with usage taxes and ad valorem taxes (which don’t exist in Canada) and all the other tax complications but now we have States making up rules as they go along. Either the federal government needs to take action and set a consistent standard or people are just not going to set up businesses or ignore the US entirely because you need a full team of accountants and tax lawyers to understand it all and the expenses that go with them.
Most businesses don’t really object to paying taxes but they do expect it to be as simple and easy as possible and 50 States all having their own rules and concepts is totally moving in the opposite direction.
Amazon (and GE) are doing exactly what they should be doing. That is capitalism. Amazon is using sales tax as a competitive advantage. They understand that the company doesn’t pay sales tax, the consumer does. They leverage that to a price advantage.
South Carolina made their choice regarding sales taxes. Amazon determined that the price advantage of South Carolina consumers was worth more than the ROI of opening an operation in South Carolina. We can only assume that South Carolina agreed that this was the best alternative for their citizens.
And, please, brick and mortar retailers haven’t all been lily white on handling sales tax in the past. At one time, it was common practice for a retailer to ship an empty box to the consumer’s low sales tax state and let the consumer walk out of the store with the goods. That wasn’t just avoiding sales tax, it was plainly illegal, but a common practice.
Once it sinks in that sales tax is a burden of the buyer, not of the seller, then the answer is very easy. The sales tax should be based on where the buyer lives, not where the retailer operates.
It is notable that the results of the Instant Poll (58% said affiliates should NOT create nexus when I looked) don’t seem to match up with the commentary on this discussion.
The idea that a community dedicated to the growth of retailing should support a “level playing field” across all “channels” is totally logical. But we should be careful what we wish for.
The Constitution expressly limits the federal government’s right to regulate commerce to “interstate commerce” for a very specific reason. The states are expected to be independent economic entities, responsible for their own commerce laws. What we are asking for is, in effect, a change to the federal tax code imposing a federal sales tax.
The primary motivation for states imposing internet sales taxes is not “to create a level playing field for brick and mortar retailers.” It is, as several have pointed out, to raise revenue because they are broke!
In case we haven’t noticed–the states are not the only ones who are broke. So is the federal government. So if they impose a federal sales tax on internet commerce to raise revenue, why wouldn’t they extend that to all brick and mortar sales as well? More revenue!
If Amazon loses this one in federal court and we get a “level playing field” via an internet sales tax, how long do we predict it will be before a federal sales tax simply becomes an incremental revenue source for the U.S. government?
Then we get to think about the extensions of the legal precedents established. So, just how broadly can you define “commerce”?
I don’t like where this leads at all.
Most of the comments above refer to today’s environment where government is struggling with today’s revenue issues. Changing laws in a knee-jerk fashion that affects the economy in perpetuity to address today’s problems is foolish.
States only have the right to tax commerce conducted in their state. We don’t have a federal sales tax.
The breaks for internet sites must end, as we brick and mortar folks are being taxed to death. It does not come out of Amazon’s pocket, and it levels the playing field for all of us. Same rules should apply for all of us, and let’s get it done sooner rather than later.
I find Mr. Bezos’ position disingenuous: first he tells us that Amazon will gladly comply with local laws when they have a physical presence, then he asks for an exemption that in effect would make having a warehouse “not a physical presence”; his definition of “complying” with a law, apparently, is that he not be subject to it in the first place.
On the broader topic: grow up people; yes the sales tax laws are a relative nuisance to deal with, but mail-order companies have been doing so for decades…online may have brought the game into extra innings, but it hasn’t changed the rules any.
Any retailer can compete with Amazon if competing means not collecting sales tax. All you have to do is open a new business with a different name and you have a conduit to sell in 49 states and not have to collect sales tax for any of them. Now we all know it just ain’t that simple, but to hear brick and mortar retailers howl that Amazon is stealing from them because just because they don’t have to collect sales tax is ridiculous. Bezos pays taxes to every government which provides services to Amazon. Now, with regard to a “national” sales tax – that ain’t gonna happen – too many conflicts. And as a native of South Carolina I can tell one and all that a progressive idea has not emanated from that state in over 100 years. Bombastic rhetoric is the order of the day! Another glowing example of government denying jobs to its citizens because no one has a third grade understanding of economics.
I am shocked by the lack of understanding of sales tax collection on this–an “expert” retail site. The playing field is the same for everyone. Amazon has no advantage that any brick and mortar retailer can not also take advantage of. The issue is poorly run traditional retailers trying to get the government to create a new internet only tax to un-level the playing field. Amazon is not winning on sales tax. They are wining on convenience and price–same as Walmart and Target putting Sears and Kmart basically out of business. The same people complaining about Amazon and sales taxes complained about Walmart, Home Depot and big box retailers 2 decades ago and used all sorts of local zoning laws to stop them. How did that work out?
Retailers asking the government for help will end badly for everyone with new taxes and restrictions and laws and reporting on everyone and everything, and still no business model or cost advantage over Amazon. It would be even worse if a brick and mortar customer had to pay local sales tax and a new internet tax because they ordered online from Walmart.
Look to create ways to make brick and mortar more interesting, exciting, convenient and relevant than online, not to try to kill online to save a historic, but increasingly less relevant business model.
Amazon and other e-tailers have shipping costs–I would bet they would pay sales tax everywhere if the government would cover their shipping costs. Of course, that’s silly–but the point is that they are two different models, and therefore have (at least) two different tax structures.
As an afterthought, most states require consumers to pay sales taxes. They can’t require out of state retailers to collect taxes for them–but–that does not absolve the consumers from not paying sales taxes on their internet purchases. So all of you who are siding with the national sales tax position go ahead a pay what you already owe AND if you think our income taxes are too low, there is no law that says you can’t give more to the IRS.