JOHN JUDIS JULY 21, 2011
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I’m a longtime customer of Amazon—everything from books, eBooks, and two Kindles to tennis balls and baseball caps—but I’m looking for an alternative. I’m not unhappy with Amazon’s service, but with its politics. Amazon is waging an aggressive campaign to prevent revenue-starved California from collecting sales taxes from the company’s customers. And that’s only its most recent effort to prevent states from levying sales taxes on online purchases.
States have always had the right to charge taxes on the purchases its citizens have made, whether at retail stories or by mail order or online. But, in 1992, the Supreme Court, citing the disparities among state taxes, ruled in Quill Corp. v. North Dakota that, if a company does not have a “nexus” in a state, it does not have to collect sales taxes on purchases that a state’s citizens make from it. It applied at the time to mail-order companies like L.L. Bean, but, by the late ’90s, the ruling was giving online retailers without any offices or stores in a state a decided price advantage over local retailers, or over online companies like Target or Barnes & Noble that had stores around the country. It was also jeopardizing the budgets of the 45 states that depend on sales taxes for about one-third of their revenue.
The states, desperate for cash during the current slump, have tried to get around the Quill ruling. In 2008, New York passed a law requiring that, if an out-of-state company had “affiliates” in the state, it would have to collect sales taxes. An “affiliate” could be an online site that received a commission from the out-of-state company when someone used a link on its site to make a purchase from the company. Amazon has thousands of such online affiliates. Subsequently, Illinois, Rhode Island, and North Carolina passed similar measures. Amazon filed suit against New York and pulled its affiliates from the other states.
California, however, is likely to be the biggest battle yet. Last month, the state legislature finally passed a budget that included a provision to tax out-of-state companies that have either an “affiliate” or a “subsidiary” in the state. (In addition to affiliates, Amazon also has a “subsidiary” in Silicon Valley that designs the Kindle.) This time, Amazon outdid itself. The company’s spokeswoman told The New York Times that “the legislation is counterproductive and will not cause our retail business to collect sales tax for the state.” (Writing in the Financial Times, Christopher Caldwell commented that “the duty to obey tax laws does not hinge on one’s opinion of their productivity or constitutionality.”) And Amazon is preparing a referendum for next year’s ballot that will allow it to escape state taxes.
There are, of course, reasons to believe that Amazon could keep its business and collect sales taxes. Its prices would still be competitive, and what it can offer that local stores cannot is the convenience of having your purchases delivered to you without having to leave your house. It also has a vigorous business in eBooks and online movies and music. But the question of revenue aside, there is also a good reason to protect local stores from unfair competition. Local realtors sustain neighborhoods and suburban malls; they fund local newspapers and theater groups. They are part of a community in a way that Amazon or Overstock—its Utah-based partner in fighting state sales taxes—will never be.
In the Quill ruling, the Court invited Congress to pass legislation that would establish uniform conditions under which states could require out-of-state companies to collect sales taxes. In response, the National Governors Association and National Conference of State Legislatures set up a committee to devise a “streamlined sales tax.” Twenty-three states have already signed onto the committee’s plan, and Amazon claims that it would support such a measure. But, as Michael Mazerov of the Center on Budget and Priorities has argued, the company has hedged its support for a streamlined tax in a way that actually amounts to opposition. And, if the proposal reaches Congress, Amazon can count on support from a Republican Party that follows the anti-tax dictate of Grover Norquist’s Americans for Tax Reform, which has fought internet taxes for over a decade and is already campaigning against the California provision.
So the battle does come down to the states—and to the California referendum next year. Here’s hoping that Amazon comes out on the losing end.
John B. Judis is a senior editor at The New Republic.
14 comments
Indeed, what Amazon is doing is illegal in the realm of common sense. It makes sales possible between parties and deliberately tries to arbitrage the taxes down to zero where other parties would not have questioned paying the tax. Amazon is not a member of the grey economy. It properly owes just over a decade in back taxes and should start paying up.
- chaitless
July 21, 2011 at 8:18am
California could impose the same tax, a use tax, on California residents who buy through Amazon. Indeed, I suspect California has a use tax (Florida does). Of course, collection is a challenge. It isn't Amazon that is the terrible citizen, it's the California residents (the tax evaders) who aren't paying use taxes they lawfully owe.
- rayward
July 21, 2011 at 9:00am
The expression "death of a thousand cuts" refers to an ancien Chinese method of execution. Civilization is collapsing, perhaps a case of "death by a thousand tax cuts."
- skahn
July 21, 2011 at 9:08am
Amazon is acting in their own interest. Can we expect more? I would like to say that the conservative Supreme Court Justices are not acting in their own interest, but I am not sure of that. Some scientists work endlessly driven to find a cure for a disease that plagues 3rd world countries whose population is unable to pay for such treatments and even then I am not sure they do not seek financial reward (although they clearly deserve it). I happen to believe that acting in pure self interest is like hitting a small child, which has immediate results but long term undesireable consequences.
- Nusholtz
July 21, 2011 at 10:02am
After this little episode and Amazon's deal with South Carolina, I am boycotting them. A streamlined sales tax system is the way to go in these deals and Amazon's heavy-handed approach (we've seen the same thing in Minnesota) is simply sickening. I'll pay a couple bucks more somewhere else (and I used to be a regular Amazon customer) just so these bastards don't get another nickel out of me. Before anyone accuses me of being exceedingly arrogant, I am fully aware that Amazon won't miss my business one bit.
- Lundell
July 21, 2011 at 11:04am
States have come to rely heavily on sales taxes because they are easier to raise. To me, sales taxes make sense when they are related in some way to the public expense the sales create. Brick and mortar retail establishments create load on the state's public infrastructure, so it makes sense for states to tax brick and mortar retail sales. If you can prove to me sales on Amazon demand anywhere near the state services that sales at Walmart do, then I'm all for collecting taxes online sales. Otherwise, this is nothing more than going after the most politically expedient source of cash, which, shockingly, also happens to be the most regressive. I don't think Amazon is the deadbeat here. It looks to me like the State of California is.
- rlpeterson
July 21, 2011 at 11:30am
I'm sorry. The sales tax is too regressive for me to do anything but cheer Amazon on. Nor can I feel anything but contempt for California's self-imposed financial problems. Republicans in that state have ensured that California will starve for tax revenues from every category, not only sales taxes. Far as I know, Amazon is not cheating on its corporate income taxes like GE, nor fouling our waters and taking tax subsidies like big oil. They seem to be fighting a fair fight within the law to minimize their exposure to the overhead and jeopardy associated with being an unpaid tax collector for dozens of half-assed states. I don't blame them one bit. Neil
- purcellneil@aol.com
July 21, 2011 at 12:13pm
"Brick and mortar retail establishments create load on the state's public infrastructure" So does Amazon. What do you think all of those trucks use to deliver the products to your door?
- tmmats
July 21, 2011 at 12:54pm
Though unstated, this essay is about Borders and the perceived advantage of Amazon not to have to charge and collect sales tax. Just the same, I still don't understand how the Amazon business model can undercut the brick and mortar businesss model. The latter distributes it product by having the customer come to the distribution center (i.e., the retail outlet); hence, its shipping costs are limited to the cost of getting the product to the distribution center, a cost based on shipment in bulk. By contrast, Amazon must incur a shipping cost on every product it sells, and not the cost for shipment in bulk, but the cost of shipment of a single item directly to the customer. I suppose Amazon's much higher shipping costs are more than offset by the lower costs of interfacing with customers (many fewer employees and no expensive retail outlets). So with the Amazon business model, we have far more UPS trucks driving around and far more UPS employees driving them, but far fewer retail outlets and far fewer retail clerks working in them. Is this what is meant by the browning of America?
- rayward
July 21, 2011 at 1:14pm
Rayward, I'm supposing that their overhead is tiny compared to their volume. But, yes, they get the benefit of an arbitrary loophole when it comes to charging and collecting sales taxes, perhaps hastening the departure of actual stores where you can browse, see what you buy before you buy it, and get it right now instead of days from now, all major advantages for which I'm still willing to pay a premium.
- JakeH
July 21, 2011 at 2:04pm
Ray, Amazon has lower costs since they don't have several stores in each city/town nor do they keep the large sales staff. Look at the number of employees alone Borders is letting go. Amazon has no where near that kind of workforce numbers nor the number of warehouses/locations either compared to a very shrunken (now defunct) Borders. Even with a few more UPS drivers the costs are still lower for a web store than a retailer. The web dealer also has the advantage of very little stock to keep on hand compared to a web retailer, yet another cost advantage (they even can play games by selling you an item, collecting your $$ and making you wait; brick and mortar stores rarely can get away with that).
- tmmats
July 21, 2011 at 5:27pm
Judis is entitled to his opinion, no matter how wrong, but I am siding with Amazon on this one. A few examples of how the Sales Tax is unfairly applied; When I register a used car in Michigan I pay sales tax on the purchase. However the same car registered in Indiana does not have sales tax. Indiana believes that the sales tax has already been paid for when the car was purchased new. Michigan is double taxing their citizens unfairly. In addition, someone who leases a car only has to pay sales tax on the months they lease the car. So on a typical $ 30,000 car they will pay sales tax on $ 10,0000. Roughly a third, while the customer who buys the same car pays the tax on the full price. That is not equitable. Michigan has added sales tax to homes now. But they provide a mortgage interest deduction on the mortgage. This conflicting treatment of home ownereship is confusing and counterproductive. If you agree that Amazon is subject to Sales Taxes by the States, would you agree that Cities like Chicago and New Your can apply their Sales Taxes too? If so, why not every city? Why any city? And why should Amazon be forced to collect this tax and provide it to the states? Let their citizens submit their tax obligation, it's not Amazon's responsibility to handle this administrative task when the local citizens are capable of doing this. Isn't the sales tax something that is paid for by the purchaser? About 15 years ago Michigan lowered Property Taxes and Raised the Sales tax by 50% to help funbd schools more fairly. A complete failure 15 years later. The Property Taxes were just increased using home values and other gimmicks. Sales Taxes have not been fairly distributed and suburban school districts have been badly short changed. I think the Sales Tax should be abolished completely.
- CRS9TNR
July 21, 2011 at 7:42pm
>"Brick and mortar retail establishments create load on the state's public infrastructure". >So does Amazon. What do you think all of those trucks use to deliver the products to your door? Tmmats, those trucks are run by a separate company, such as UPS, which pays the drivers, pays registration and taxes on the delivery vehicles, and (in California) pays gas taxes which pay for roads. The delivery function is separate from the sales.
- mrheckman
July 21, 2011 at 10:37pm
John didn't write with this slant or this much historical/political shading, but take a look at this Kevin Drum piece and see how well-disposed you all are to Amazon after: http://motherjones.com/kevin-drum/2011/07/amazons-scorched-earth-fight-against-everyone And all to secure the privilege of not paying taxes because we don't have a federal VAT. I fail to see how this is substantially different from GE's shop of lawyers and accountants dedicated to zeroing out its taxes. In some ways it's worse, because they promise jobs but not the ancillary business activity that the state really wants (millions in sales taxes >> a few hundred jobs).
- chaitless
July 22, 2011 at 7:15am