Tax Dispute

More states, facing massive budget shortfalls, are reexamining their tax codes in an effort to collect sales taxes from online sellers. The move is generating the greatest response from, the world’s largest online retailer. For years, Amazon collected sales tax in only five states — Kansas, Kentucky, New York, North Dakota and Washington — where it has offices.

In 2010, Texas sent Amazon a tax bill for $269 million after deciding that the retailer’s Dallas Fort Worth warehouse, owned by an affiliate, qualified as a local address. Amazon said it would close the warehouse if the Texas government continued its effort to recover lost tax revenue. Amazon can back up its threat, having previously dropped affiliates in Rhode Island, North Carolina, and Colorado for similar reasons. Common ground was met in early 2012 when Amazon agreed to create 2,500 jobs and invest $200 million in Texas if the state forgave the $269 million in back taxes and delayed collecting Amazon sales taxes until July 1, 2012.

In 2011, California followed suit when State Assemblywoman Rep. Nancy Skinner introduced legislation to tax online sales. Amazon threatened to sever ties with its California partners if the bill, AB153, was passed. The California State Board of Equalization denounced AB153, saying it would hurt the 10,000 California retail affiliates while leaving Amazon unaffected. Amazon managed to delay the legislation’s enactment for a year in exchange for promising to create 10,000 full-time jobs, 25,000 seasonal jobs, and to invest $500 million in the state. Amazon began collecting CA sales taxes on September 1, 2012. While the state benefits by increasing its revenue, the move will lead to higher bills for online shoppers. The sales tax rate varies among counties, fluctuating between 7.75% and 9.75%. In other terms, California residents will pay as much as $9.75 in taxes for a $100 purchase.

The National Conference of State Legislatures estimates states lose $23 billion in sales taxes per annum, $11.5 billion of those losses from online purchases. Amazon’s ability to easily cut ties with affiliates has for years deterred many states from attempting to collect lost revenue. The example set by Texas and California, then, will likely lead more states to revise their policies in the coming years.



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