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Amazon's Brawl with States Hurting Local Communities

May 11, 2010 at 3:53 PM

As ABC reports today, Amazon.com is fighting North Carolina’s attempt to collect sales taxes that residents owe on their online purchases.  This is one of several ongoing fights between the company and states trying to collect the roughly $8.6 billion they’re owed each year from Internet sales.  With states laying off thousands of teachers and taking other painful steps to close huge budget shortfalls, Amazon’s actions are coming at the expense of the public interest.

The specific issues vary from state to state, as I’ll discuss in future posts.  But here are a few basic facts to keep in mind:

  • States aren’t trying to create a new tax, just collect one that’s already due. Sales taxes are already legally due on online sales if the same item would be taxable in a local store.  But the Supreme Court has ruled that states can’t force online retailers to collect the taxes unless they have a “physical presence” in the state, and some retailers — the biggest of which is Amazon — don’t collect them.States have been looking for ways to address this problem.  Last week a new law and regulation took effect in Colorado requiring Internet retailers to tell their customers that they likely owe state sales tax on online purchases even if the retailer didn’t charge them for it.  When Colorado enacted the law in March, Amazon retaliated by telling its small business partners there that it would immediately stop doing business with them unless the state repealed it.

    Amazon is also challenging a New York law that requires the company to charge that state’s sales tax.  (Under the new law, since Amazon pays independent New York websites to solicit business for Amazon in the state, it effectively does have a “physical presence” in New York.)  An appeals court decision is expected in the next few weeks.

  • Amazon claims that it can’t cope with the many different sales tax laws from state to state, but that argument is hard to swallow. Amazon already collects sales tax in virtually every state for the Target department store chain and many other stores that sell on Amazon’s website.
  • Amazon’s campaign is hurting communities across the country. States’ inability to collect most sales taxes from online purchases means that residents have to make do with more crowded schools, worse roads, and less health care — or pay higher taxes.  Also, when Main Street businesses lose customers to online retailers like Amazon because they have to charge sales taxes and online retailers don’t, that hurts local economies and puts local jobs at risk.

The good news is that there’s strength in numbers.  If enough states enact and enforce laws to ensure that they receive the taxes they’re legally owed, that will help level the playing field for local shops and provide public services with much-needed support.