Anyone who either does business in multiple places, has customers in more than one state, or has ordered a product from a company in another state has dealt with this one: there’s no universal sales tax, and knowing who owes what to whom when those crossing-state-lines transactions takes place is a minefield.
OK, so actually, at the very bottom of the way taxes work it isn’t a problem at all. If you buy something you’re responsible for paying tax to the state (or even more granularly to the county or city) where you live. Not every state has a sales tax, though, and each jurisdiction that does has different ideas of what’s taxable, so the system that’s evolved over time is one where A) merchants who sell taxable items collect tax and pass it on to taxing jurisdictions and B) they collect their local taxes without regard for where the customers buying things live.
It’s a mess. It’s always been a mess. And until the Internet came along it was a mess that states liked because even though it’s the purchaser who owes the tax, sellers were acting as a very efficient unpaid tax collection force.
Then, we started buying from places we’d never visited. And if you live in New Jersey and buy something from either Amazon.com (located in Washington) or someone who was funneled business by Amazon and themselves weren’t in either Washington or New Jersey, the retailer didn’t collect tax. After all, as a resident of not-Washington I don’t owe taxes there, and since s/he isn’t selling from Washington neither does the vendor.
Since purchasers almost never report their out-of-state purchases and pay taxes on them at home, this caused a tremendous loss in tax revenue to all the states. And a few states have fought back. Colorado enacted a law that forced Amazon.com to put all their Colorado-based resellers out of business, for example. New York tried to force companies like Amazon to collect sales taxes for them, too. I’ve been telling you about the problem collecting out of state sales tax for years, and despite one jurisdiction after another passing laws that are constitutionally questionable, the parade of non-compliance has gone on. And on. And on.
The State of California and Amazon.com may have just put an end to the problem.
California was one of the states trying to force Amazon.com to collect sales tax on items originating in California but sold to people who don’t live there. And last week, Amazon.com and California struck a deal: California is not going to force Amazon.com to collect taxes for one year, and in exchange Amazon has “dropped their opposition” to the law requiring them to do so.
Think about that for a second and you’ll see what it really means.
Amazon.com won’t ever really “drop their opposition” unless there’s a simple way to collect taxes, because once they agree to work within California’s law they’ll have a very hard time not working with other states as they pass identical laws. And the sheer burden of tracking and collecting taxes in fifty states and an untold number of counties and cities where Amazon has no presence would be HUGE.
Meaning that Amazon has to root—and now lobby—for a national sales (or similar) tax to replace the individual state taxes.
Agreeing to play this game with California is the reverse of what telephone companies deal with collecting fees like The Federal Subscriber Line Charge. Telephone companies collect taxes in each state in which they actually operate. There IS NO “Federal Tax” on phone service. And it’s a mess; phone companies have to explain the matter to customers who don’t understand the fees they pay, and most often these phone-company-imposed, collected, and kept fees are either explained as Federal Taxes or phone company employees imply that that’s what they are. But at least there are separate administrative teams in each state.
Having to collect sales taxes in jurisdictions where you don’t operate would be even worse. Amazon.com couldn’t possibly really be OK with that, and now they have no choice but to try and force a national tax to replace the current system. Or even better, national legislation specifically prohibiting what states like California, Colorado, and New York are trying to do.
But here’s the real problem:
Amazon might hate the idea, but they could handle it. If there was suddenly a requirement for all retailers to collect sales tax on behalf of all jurisdictions, small companies would go away; the burden is simply too large. But Amazon.com would be fine.
THERE’S business change. And you need to make noise to stop it from happening.
Please get informed before you write. Brick & mortar chains with stores around the country (Walmart, Best Buy, Target, Sears, on and on) all have online businesses, and all collect sales tax online based on where the customer lives. They have to, because of the “physical presence” ruling. Complexity is not the issue. Sears, JCPenney, Wards, etc. were doing the same thing with catalog sales for decades before there ever was an internet. Yes, it’s complicated, but obviously not impossible. Amazon is a giant company… bigger than some named here. So they could do it too. The only reason they fight sales tax collection is because they don’t want to give up what amounts to an unfair price advantage. They even hide their distribution centers under subsidiaries so they can maintain their claim of “no physical presence.” Meanwhile financially strapped states and cities are losing large amounts of tax revenue as a result.
Actually, I SAID that. And using the phone company part of things I also said it’s fair, BECAUSE they have people in those jurisdictions and there for have a reasonable (i.e., not unfairly burdensome) chance of knowing exactly what the local regulations are. What I said was unfair is having no local presence (for real), and having to know the laws and regulations.
Imagine your buyer being (for example) in Yonkers, NY, where businesses need to collect both NY State and Yonkers City sales taxes. Why in the world should a business in Alabama be responsible for knowing there’s a CITY SALES TAX?
Or are you suggesting that the enforcement can stop at the sate level?
They’re responsible (or should be) to know and collect it because the CUSTOMER owes that tax to the city. It’s not “unfairly” burdensome, because, as I said, other companies have been doing exactly that for a long time. It’s not easier just because a retailer has physical stores — if you have a single store (or even an office) in Buffalo, NY, you have to collect ALL state and local sales tax for every online sale anywhere in NY — whether in Yonkers or Albany or whatever. That process is managed centrally –computers keep track of the tax rates (state, local, sub-local) and how much tax needs to be remitted where. It’s very complicated, yes, but there’s software to do it. Meanwhile, a coalition of more than 20 states is pushing for a solution in the form of a “streamlined sales tax” — not a national tax but a system to standardize among states and localities what is/is not subject to sales tax — which would make it easier for all. (Check out the Main Stret Fairness Act as well.)
My contention is that the Amazons aren’t looking for a simpler way; they merely want to continue avoiding collecting sales tax as long as possible, because it’s a de facto pricing advantage for them.
We actually agree on the statement about Amazon’s real intent; of course that’s what they want!
As for your statement about being in Buffalo (only) and being responsible for collecting tax in NYC, Yonkers, Albany, and White Plains (I believe that list is all-inclusive for NY vis a vis localities with sales taxes), I’m shocked and horrified if that’s the case. I imagine that the only way that can be correct is if a requirement of being registered as a business entity in the state of NY is the obligation to collect all local sales taxes, which … just doesn’t sound right. I certainly hope you’re wrong!
Finally, the issue of who owes the sales tax just makes this more complicated. Yes, the truth is that the customer ultimately can be construed as being the party responsible for owing the tax, by virtue of being expected to pay tax on out of state purchases AS the customer—the end/final user/consumer. But if that’s REALLY true than businesses have a great argument for not collecting in the first place. In my opinion, the only reason businesses collect and submit sales taxes, pragmatically speaking, is because even though they DON’T owe the taxes collecting and submitting is a lot easier than fighting a barrage of lawsuits from their areas-of-jurisdiction Attorneys General.
As I said, ultimately the only real solution is a highest-common-denominator tax collection effort. Call that a national sales tax, a VAT, or whatever, but until/unless this is a federal function businesses don’t REALLY seem to have an obligation to collect for any jurisdiction in which they don’t have a presence.
There are reasonably priced sales tax rate data services that have existed for years. Any company with moderately sophisticated 20 year old POS software can handle implementing these databases. Amazon more than meets that standard. The bigger burden, in my mind, seems to be in knowing where to send the collected taxes.
Thanks, Mark. Seriously, one of the best comments I’ve ever seen.
You’re absolutely correct that it isn’t all that hard to deal with the issue; there are companies that make the data available and I presume it can be easily integrated into whatever your accounting systems are when you’re a big enough company. But that still (in MY opinion) falls under an unfair burden kind of umbrella when you get back to the original point; if I’m not in your jurisdiction I don’t owe your tax (and think about how that applies to, say, taxes owed in other COUNTRIES).
But your second point is the real icing on the cake. Just chasing down all the ancillary information is a HUGE burden.
The “not my jurisdiction” argument is moot. Retailers are required by law to collect the applicable tax, but it’s the customer who OWES it at the point of purchase. So if you buy in a physical store, the tax rate applies where the store sits. If you order from home, the tax rate for your home applies.
In most cases doesn’t the collected tax go to the state comptroller (or whatever the title) who is then responsible for parsing out to the various jurisdictions? Also most states allow the retailer to keep a small fraction of the tax they collect to cover their administrative costs. Still, I’m not going to argue that it isn’t burdensome. But the burden should be fairly applied whether you’re Amazon or Barnes & Noble, right?
Also that burden is one reason why the Main Street Fairness backers would include an exemption for small mom & pop internet businesses.
Yeah. And yeah. But for me, at the end of the day there’s a problem and a VAT-like tax seems like the only way to solve it. And Amazon and their “agreement” with California could be just what’s needed to goose things in that direction.