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Amazon Bad News Behind Mask Of State Tax Win
And even if states can’t collect sales tax directly from E-tailers, there’s now a good chance customers will end up with a tax bill—one that will have E-tailers’ names all over it.
How did we get into this sales tax cat-and-mouse game? It’s been going on since 1992, when the U.S. Supreme Court ruled that North Dakota couldn’t collect sales tax from office-supply retailer Quill Corp., whose customers used Quill’s custom software to order electronically. (Note: That was three years before Amazon.com—or pretty much anyone else—sold its first anything on the Web.) The Supreme Court said that a retailer has to have a physical presence in the state (a “substantial nexus” in legal parlance) before sales-tax liability kicks in, and Quill’s floppy disks didn’t qualify—and that only Congress could change that nexus requirement.
Ever since, out-of-state E-tailers have argued that they don’t have nexus, brick-and-mortar retailers have fumed that Internet players don’t have to charge sales tax and states have looked for ways around the Quill ruling to collect from E-tailers anyway.
For example, Barnes & Noble tried to argue that its E-Commerce operation was independent of its physical stores. That didn’t fly in California courts. Amazon.com claimed its distribution centers in Texas were actually owned by a separate company that happened to have “Amazon.com” in its name and shared a corporate address with Amazon.com. That didn’t fly either, and last month Texas sent Amazon a $269 million bill for uncollected sales taxes. (Amazon says it will fight the tax bill.)
Meanwhile, states have lobbied Congress to change the law (with no luck so far) and looked for new ways to establish nexus—especially for Amazon. New York found an opening with its “Amazon tax” law in 2008, which declared that E-tailer affiliates qualified as nexus. Amazon and Overstock.com both fought the law in court, lost and are appealing. Meanwhile, Amazon is collecting sales tax from its New York customers.
Seeing New York’s success, North Carolina and Rhode Island tried a similar tack. Amazon responded by cutting off its affiliate programs in those states. Colorado passed a law requiring E-tailers to notify customers that they’re required to pay the tax on what they buy online. Amazon’s response: It dropped its Colorado affiliates. California also tried a tax-the-affiliates approach, which the legislature passed but was vetoed by the governor.
In the case of North Carolina, Amazon didn’t just cut off affiliates. It also responded to the state’s request for all information on all sales to state residents by sending the state information on every item sold except the names and addresses of the buyers.
-Marc
October 28th, 2010 at 9:48 am
Wasn’t the ruling that NC cannot own both the items bought and customer information at the same time? How would they be able to match the two? The only thing NC would know is $X billion in tax is owed and these are the people who should pay it. A customer could claim they purchased $1 worth of items and NC would never know.
October 28th, 2010 at 4:36 pm
The Quill decision in ’92 upheld an earlier decision (Bellas Hess ’67) that said it would be too burdensome for out-of-state retailers to collect state sales tax. Today, technology makes is easy for anyone to open a Web business, manage inventories, use targeted marketing, calculate shipping etc.
The Main Street Fairness Act, now pending before Congress, would modernize the law to catch up with the reality that so much shopping is now done online. 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 as in the NC ruling, and 2) raise fairness issues since not all consumers will be contacted to pay up.
October 28th, 2010 at 7:17 pm
Okay … there’s a reference in this article to a NC Dept of Revenue person saying they want the information to collect outstanding use taxes from the consumer.
However, throughout the judgment both the court and DOR stress that the information is required with respect to the audit against Amazon, not its customers.
Unless the state is able to establish Amazon has a tax nexus in the state, then it’s unlikely they will make a tax nexus claim stick. To me, it seems obvious that the DOR has another agenda entirely. Sorry, NC customers.
I hope Amazon appeals this decision.
October 28th, 2010 at 8:34 pm
I have said many times that the Sales & Use tax is the most insidious tax ever devised in the US. There is no end to it. Yes, everyone owes tax even if purchased without it according to the laws. Like going to a sales tax free state in the next state and bringing it home, you still owe Your state the tax, or the difference.
This is the one tax that puts the burden on the low end of the income spectrum, too, – sure everyone pays the same rate – But taxing me on what I earn and then, when I spend it, taxing it again?
Unless they is a serious push to make these taxes uniform, it is also a major PITA to keep up with all State/City/Local tax rules and rates – I know, I did it for 25 states for many years. Some states have over 4 jurisdictions, too! Solid Waste Commission tax – really?
The Sales & Use tax is the politician’s easy way out.
Solid