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THE MUSINGS OF A TRADITIONAL SOUTHERN DEMOCRAT

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Sid in his law office where he sits when meeting with clients. Observant eyes will notice the statuette of one of Sid's favorite Democrats.

Monday, March 14, 2011

Something I am in favor of - taxing online retail sales: Amazon Pressured on Sales Tax

From The New York Times:

Across the country, state officials struggling with big budget shortfalls are trying to get Amazon.com to take on a role it does not want: tax collector.

Amazon’s skirmishes with states over whether it should collect sales taxes have been an ongoing battle. But the fighting has recently escalated, coinciding with the economic woes that have left a number of states struggling with multibillion-dollar deficits, and looking for money wherever they can find it.
Last Thursday, Gov. Pat Quinn, Democrat of Illinois, signed a law that compels online retailers that work with affiliates in his state to collect sales tax on purchases by residents.

Affiliates are partner sites that earn commissions by advertising or linking to an online retailer’s products, sending traffic that way. Lawmakers in California, Hawaii, New Mexico, Minnesota and Vermont have introduced similar legislation.

Amazon, based in Seattle, is fighting back. It vehemently opposes the legislative efforts, and in letters to state officials, has called the provisions unconstitutional and counterproductive.

“We play by the same rules as other retailers, as the national chains collect online only for states where they have physical stores,” Paul Misener, Amazon’s vice president for public policy, said in a statement.

Meanwhile, last fall, Texas officials sent Amazon a tax bill for $269 million, after determining that the retailer’s Dallas-area warehouse, owned by a subsidiary, qualified as a local address under state tax rules. Amazon had argued for years that without stores and offices in the state, it had no obligation to collect sales tax there. The dispute is to be decided in a coming administrative hearing.

In retaliation for Texas’s move, Amazon said last month that it would close the warehouse next month and cancel plans to build another.

The new laws are intended to help fill state coffers as lawmakers are being forced to cut funding to education, Medicaid and public safety. The changes are also promoted as leveling the playing field between online retailers and brick-and-mortar stores, which must tack on an extra 8 percent in most states, give or take, to the price of every transaction.

A state can compel companies to collect taxes only if they have a physical presence in the state, or a nexus, as the Supreme Court ruled in Quill Corporation v. North Dakota in 1992. Absent a nexus, online retailers and mail-order companies can sell products without collecting the tax.

What many people fail to realize, however, is that the tax is still due. Residents are supposed to self-report what they owe in their annual state tax filing, but most people do not.

Amazon collects sales tax in only five states — Kansas, Kentucky, New York, North Dakota and Washington — where it has offices or another physical presence.

It avoids collecting in several other states where it has warehouses by assigning their ownership to a subsidiary. Until the tax dispute in Texas, Amazon had encountered few problems with that arrangement.

Traditional retailers like Sears, Barnes & Noble, Best Buy and Wal-Mart applaud efforts to require Amazon to collect sales tax. They call it a matter of fairness because their stores do.

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