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Amazon Fights off the Tax Man

January 27, 2011 has been pushing back aggressively against efforts to impose sales taxes, but it could be going too far in Tennessee.

The Seattle-based company is being wooed by Tennessee officials with a package of economic incentives to build a distribution hub there, according to the Seattle Times. The enticements so far include free land, job-training help and over $12 million in property tax breaks. However, the e-tailer also wants to get its sales to Tennessee residents exempted from taxes, which would fly in the face of state nexus rules (and a Supreme Court decision) that allow states to collect sales taxes from companies that have a physical presence there. It is unclear if Amazon will win that battle, but discussions with state and local officials are ongoing.

In the meantime, Amazon won another battle in the sales tax war, albeit indirectly, this week. A federal judge in Colorado issued a preliminary injunction on Wednesday to keep the state from enforcing a law that was passed last year to force out-of-state retailers to report their customers’ sales to the state Department of Revenue if they exceed $500 and to send customers an annual notice of how much they owe the state in taxes, according to the Associated Press.

The lawsuit challenging the law was not brought by Amazon, but by the Direct Marketing Association, a trade association. However, the Colorado law has been seen as a way to pass a so-called “Amazon tax,” so online retailers like Amazon are the main beneficiaries.

U.S District Judge Robert Blackburn ruled that the law was unconstitutional and violated the interstate commerce clause. Now a group of Republican lawmakers in the state want to repeal the law, which was spearheaded by Democratic legislators. Last year, Amazon cut off ties with its affiliates in Colorado as a way to try to short-circuit the law, as it did with several other states like Rhode Island and North Carolina that also tried to impose sales taxes on the company’s customers. If Colorado passes a repeal of the law that the judge has now ruled unconstitutional, Amazon could be welcoming those affiliate sites back with open arms.

Comments (4)
When the Supreme Court ruled on this matter in 1967 and 1992 it was too difficult for a remote seller to keep track of the thousands of jurisdictions - which is why they were exempted from the obligation to collect. Moving forward to today, large internet retailers easily manage thousands of items for sale at any given moment, and even the smallest internet retailer can calculate accurate shipping rates to every corner of the country in a blink of an eye - it is no longer too difficult to keep track of a few thousand local jurisdictions.
The fact is, consumers already owe sales tax when they make a purchase from an out-of-state seller. Understandably though, many consumers don't keep track of every purchase and report them. It makes more sense for the seller to collect the tax, just as a bricks-and-mortar store does. Technology makes it easy for anyone to open a Web business, manage inventories, use target marketing, calculate shipping etc. Technology has solved this problem also. My company,, offers a service (called TaxCloud) that enables merchants to accurately calculate local sales tax. The service is completely free to merchants.
It is better that Congress address this issue so that all businesses collect the correct tax. Until then, more and more states are going to be attempting on their own to collect these taxes, which will 1) raise privacy concerns, and 2) raise more fairness issues since not all consumers will be contacted to pay up.
Posted by BeatriceV | Monday, February 07 2011 at 1:09PM ET
As an American Patriot once said, "Taxes are the price of Liberty."

Seems that the so called "States Rights" criers are a bunch of hypocrites when they deny their own States from collecting their just due.

And when they claim to support the small businessperson they once again lie, since the companies that benefit from not having to charge a sales tax are the large corporations, not the small mom and pops.

So much for the hypocrites and liars, and we know who they are. And why do so many support those who deny themselves, their relatives, their friends, and neighbors? Selfishness, nastiness, a screw everybody else attitude?
Posted by | Saturday, January 29 2011 at 3:54PM ET
An addition to my previous comment. Another advantage to a single central sales tax rate is that it would prevent "shopping" tax rates by the buyers, because it would be the same rate for all purchases in all states.

Sales outside the USA might present a treaty issue. But that could be dealt with as well in the enabling legislation and various treaties. Amounts for non-treaty destinations would probably stay with the Federal administrator, or maybe go to the state of origin rather than destination.
Posted by jlp2302 | Friday, January 28 2011 at 2:21PM ET
Common sense on the part of the states is required here, but unlikely to happen. I don't think anyone would dispute that goods that are normally subject to sales tax should be taxed in that way even on mail/internet orders. The problem is the method.

Each state tenaciously holds on to its "sovereignty", meaning they reserve the right to administer and collect their own taxes in their own way at their own rate. But vigorous opposition prevents that. What they keep proposing puts entirely TOO much burden on the business that has to collect and disburse the tax.

Instead something simpler and more cooperative would get all states an appropriate and acceptable increase in revenue without overly burdening business. Create a Federal sales tax administered as follows. It would be a fixed reasonable rate (whatever, 8%, 10% or maybe the average of all state sales taxes).

Only that flat rate would be charged on all mail order or internet non-resale purchases, and the business would only pay one sales tax on those sales to the Federal administrator. The sales tax report would include a breakdown of the taxes collected by product destination. The Federal agency would keep 1% as an administrative and audit fee. Each state would get the rest, and have no administrative overhead, because the Federal government would be the enforcer.

So everyone comes out ahead. The retailers just collect and remit the tax to one agency. The states collect a fair amount, and stop wasting millions of our tax dollars waging a losing fight. And the Federal government also gets a small piece of the action.

Probably makes too much sense to ever actually happen.
Posted by jlp2302 | Friday, January 28 2011 at 2:06PM ET
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