Amazon: The (Online) Taxman Cometh

The Largest U.S. online retailer looks to battle against collecting sales tax from customers

By Chet Chung, Staff Writer

via taxamnesty.ca

Earlier this year, Illinois Governor Pat Quinn signed into law a bill that forces online retailers like Amazon.com Inc. to collect sales tax from its customers.  The law, dubbed the Main Street Fairness Act, prevents companies like Amazon from claiming they have no physical presence in the state and selling goods to customers without charging and collecting sales tax. 

This move marks but one of the many nationwide battles raging between online retailers and state governments over the issue of sales tax collection.

“Online retail sales are now very fulsome and are growing at the expense of local units of government,” said U.S. Senator Dick Durbin.

Of particular interest is the amount of sales tax that state governments are unable to collect as a result of buyers bearing the onus of voluntarily declaring sales tax on their online-purchased goods by themselves.  Last year, according to the National Conference of State Legislatures, states lost an estimated 8.6 billion USD in uncollected sales tax from online and catalogue purchases.

However, state governments are not alone in their battle against companies like Amazon.  Big-box retail chains, such as Walmart and Target, as well as numerous mom-and-pop stores or “Main Street” businesses, are backing such legislative actions that would, as Walmart affirmed in a statement in March, “help create a level playing field between online-only retailers and brick-and-mortar retailers.”

“Amazon has basically a 10 per cent pricing advantage, and they’re fighting like the dickens to keep it,” Fiona Dias, an executive vice-president at Pennsylvania-based GSI Commerce.

Indeed, Amazon has wrestled with and succeeded in shutting down legislative attempts to impose “Main Street Fairness” on the retailer.  In Texas, Governor Rick Perry vetoed a bill that would force online retailers with distribution centres in the state to collect sales tax after Amazon threatened to close its shipping facilities, fire local workers, and toss all future projects to build more distribution sites in the state.  Similarly, in South Carolina, following Amazon’s announcement that it would relocate its shipping centre to another state, the company won an exemption from the State Legislature on a new sales tax law. 

Nonetheless, Amazon’s recent victories give the company some leverage in the ongoing sales tax collection issue, as Senator Durbin is set to present a Main Street Fairness Act at the Federal level before Congress this month. 

“The Main Street Fairness Act doesn’t ask anyone to pay a single penny more in taxes,” said Durbin in a press release. “Instead, it would help governors and mayors collect taxes that are already owed.”

Like the many similar bills passing through state legislatures, Durbin’s proposal would require businesses to collect sales tax on online purchases based on the buyer’s location, whether or not the business has a physical presence in the given state.  What differs between Durbin’s bill and those of state governments is that a federal law would create a simplified and uniform sales tax system for the entire country as opposed to a select group of states. 

Even so, finding supporters for the bill may prove rather labourious for Durbin, as the pending legislation faces not only misinterpretation as a new tax, but also a Republican-controlled House of Representatives. 

“It’s long been an issue the Republicans weren’t interested in, and given that they’re in control of the House, I don’t see it going anywhere,” said Pam Olson, former Assistant Secretary for Tax and Policy at the U.S. Treasury Department.

Yet Amazon’s worries may well be uninformed, as it were, even if the bill were to pass.  An analysis conducted by Wells Fargo Securities found that, excluding sales tax, prices on average at Amazon were 5 to 6 per cent lower than those at Walmart and 12 to 13 per cent cheaper than Target’s.  Moreover, not having to avoid sales tax collection would allow Amazon to establish more convenient shipping centres and subsequently increase the efficiency of its supply network.

In fact, Amazon founder and CEO Jeff Bezos stated the company’s support for streamlined sales tax, asserting that “the right way to fix this is with federal legislation.”

However, endorsement for such legislation from Bezos and Amazon remains dubious at best.

[pullquote]Ultimately, this is a battle they are going to lose, and this is about how long they can push off that day of reckoning.[/pullquote]

“They always claimed to support a federal solution, but they’ve never lifted a finger to get there,” Jason Brewer, vice-president for communications and advocacy for the Retail Industry Leaders Association. “Ultimately, this is a battle they are going to lose, and this is about how long they can push off that day of reckoning.”

ARB Team
Arbitrage Magazine
Business News with BITE.

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