Sales Tax Buzz

In these stormy days of the ongoing saga between Amazon.com and a number of states (see here, here, here, and here), the nonpartisan Center on Budget and Policies Priorities released a riveting report this week concluding, among other findings, that Amazon’s arguments against collecting sales taxes do not withstand scrutiny – costing states up to $7 billion a year in lost sales tax revenues from online retailers’ failure to charge, collect, and remit.

Recall last April in what I deemed “The Must Read E-Commerce Paper of the Year,” a ground breaking report by the University of Tennessee’s Donald Bruce, William F. Fox, and LeAnn Luna, the authors demonstrated that state and local governments stand to lose at least $11.4 billion in sales tax revenues to the Internet by 2012.

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This week’s report, “Amazon’s Arguments Against Collecting Sales Taxes Do Not Withstand Scrutiny,” could most definitely qualify as the second must-read e-commerce paper of 2009.

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With careful precision, the report positively obliterates Amazon’s chief arguments with clean data, reasoning, and examples. I cannot do this report justice, but will paraphrase just some of the most cogent findings, including:

Amazon: It’s excessively burdensome to collect sales tax in every state.

Center on Budget and Policies Priorities: No, no, it must not be too burdensome because, “Amazon already collects sales tax in virtually every state for numerous other companies that sell on its website and could do so on its own sales with relatively little additional effort.” [My input: Did you ever think of automating that process by outsourcing to a Certified Service Provider that could handle end-to-end sales tax compliance?]

And from the report, “But Amazon already shoulders most of those burdens for thousands of companies that sell on its website. For example, it calculates and collects sales taxes in every state except one for the Target department store chain, which has outlets in those states and therefore acknowledges an obligation to charge tax on its Internet sales made on Amazon’s site. The fact that Amazon charges sales tax in connection with other companies’ sales but not its own suggests that Amazon’s primary goal is exploiting its price advantage and not avoiding sales tax compliance efforts and costs.”

Amazon: Why should we collect sales taxes in states with which we lack physical presence, which would be unfair because we do not directly benefit from the public services that flow from these collections? And of course we collect in those states with which we have nexus, as loosely defined as physical presence.

Center on Budget and Policies Priorities: What? You only collect in FOUR of the SEVENTEEN states where you have the physical presence. From the report, “It is disingenuous for Amazon to argue that it should not have to help support public services in states in which it has no physical presence when the company fails to support public services in most of the states in which it has a physical presence.” Additionally, its facilities in these states and employees who work there certainly receive “the same kinds of state and local public services received by every local retailer that is legally obligated to charge sales tax.”

Amazon: Sure, sure, if you enact a federal solution (i.e. the Main Street Fairness Act – for more on this legislation, see here, here, and here), we’ll comply and even support that solution.

Center on Budget and Policies Priorities: Seriously? You may say that, but actions speak louder than words. “At the same time, however, Amazon has helped stymie the enactment of the federal legislation for several years,” going on to list ways it has done so. And, from the report, “Amazon’s top management has said publicly from the founding of the company that not charging sales taxes gives it a key competitive advantage over its Main Street rivals. Founder and CEO Jeff Bezos has stated that the desire to exploit this advantage helped drive his decision to locate the company in Seattle; it also appears to have played a major role in how Amazon structures its overall business and individual sales transactions.”

So What’s Amazon Really Up To, According to the Report?
According to Michael Mazerov, the report’s author, the answer is simple: “What actually seems to be driving Amazon’s opposition is simply a desire to maximize the significant competitive advantage it gains over its rivals when they must add the typical 5 percent to 10 percent tax to their prices but Amazon does not.”