Bezos: Attempts To Collect State Sales Tax On Amazon Sales Is Unconstitutional

from the won't-stop-'em dept

For quite some time now, we’ve covered how various states have tried to avoid laws that say mail order companies don’t need to collect sales tax in states where they have no staff (while individuals are supposed to self-declare and pay that tax, almost none do). The main target has been Amazon, with various states pushing to get Amazon to pay taxes anyway. Amazon has taken a hardline with many of these states, even announcing plans to move subsidiaries out of Texas if it kept on trying to collect sales tax because of those subsidiaries. The latest, found via Slashdot, is that Jeff Bezos is claiming that such attempts to collect sales tax are unconstitutional without Congressional approval:

And in the U.S., the Constitution prohibits states from interfering in interstate commerce. And there was a Supreme Court case decades ago that clarified that businesses ? it was mail-order at that time because the Internet did not exist ? that mail-order companies could not be required to collect sales tax in states where they didn?t have what?s called ?nexus.?

And that?s a very clear decision.

This is, of course, entirely accurate. Of course, Bezos also points out that Amazon would be perfectly happy with Congress stepping in and creating a sales tax system that works across states. There’s been an ongoing effort for years, called the Streamlined Sales Tax Initiative, which tries to align all of the states and their sales tax practices, to avoid every company from having to follow 50 different sales tax laws. Bezos notes that Amazon would support such an initiative:

Our point of view on this is that we should simplify the sales tax system, and we?ve been consistent on this for about 10 years. It?s called the Streamlined Sales Tax Initiative. I think 22 or 23 states have signed onto it. Because the right way to fix this is with federal legislation. That?s where it can be fixed properly.

Sales tax collection is very complicated. And, you know, we?re no different from big chains of retailers ? they don?t collect sales taxes in states where they don?t have nexus, either. So everybody is following the same rules. And I don?t think our customers would say, ?Why don?t you just optionally collect the tax? I know you?re not required to do it, but aw, go ahead.?

This is actually a pretty big issue. It makes sense that companies shouldn’t have to collect sales tax in states where they have no employees. Not only does it create a massive bureaucratic nightmare (especially for smaller e-commerce players), but it actually acts as disincentive to sell into those states. On top of that, the point of the sales tax is supposed to be about supporting the local infrastructure for those retailers (roads, and such). But if you have no local presence, there’s a much weaker argument that such taxation is needed. Still, I have no doubt that eventually sales tax will be standardized at the federal level in some format or another, just because the government can’t resist a chance to tax — especially a tax that can be seen as regressive, like a sales tax.

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Comments on “Bezos: Attempts To Collect State Sales Tax On Amazon Sales Is Unconstitutional”

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- says:

On top of that, the point of the sales tax is supposed to be about supporting the local infrastructure for those retailers (roads, and such). But if you have no local presence, there’s a much weaker argument that such taxation is needed.
Yes, but by letting some companies not pay taxes in your state, you give them competitive advantage over local businesses.

Michael Long (profile) says:

Re: Re:

If it’s such a competitive advantage, the state is free to lower or even drop state sales tax and find other ways and means to generate income. Several states, in fact, have no state sales tax.

As far as “roads and such” go, I’m pretty sure that UPS and FedEx pay local taxes for their trucks.

And one FedEx truck on the road delivering 50 packages is a hell of a lot less wear and tear and traffic than 50 vehicles on the road traveling hither and yon.

Anonymous Coward says:

Re: Re: Re:

Oregon does not have a sales tax, and best of all we get a huge number of people that drive over the boarder from Washington and California to go shopping for things like Refrigerator’s and Washer’s ect. On the flip side we have one of the highest income tax rates in the US.

However, this has the distinct advantage of making things like unemployment really hit the state bottom line, so they have real numbers driving them to create jobs.

All in all, I think that sales taxes are basicly not going to work in the long run.

Anonymous Coward says:

Bezos is such a tool.

ok Jeff, so you’re saying your business doesn’t exist in ANY state?

This shit is so funny to me- the way you people try to crank on record labels for their business practices and then give a free pass to exponentially worse companies like Google and Amazon.

just remember, we notice the hypocrisy. It’s right out there in the open.

Capitalist Lion Tamer (profile) says:

Re: Re:

Well, this comment is just terrible. You can’t even be bothered to find a strawman or two to prop up in the corners.

You’ll have to go find me that quote where Bezos says he has no employees in any state, because I just can’t seem to find it.

And since “worse” is pretty subjective and covers a lot of ground, it’s pretty tough to discern exactly what your record labels (good, apparently) vs. Google/Amazon (bad, somehow) is supposed to mean.

The record labels don’t really have “business practices” at this point. They’re just kind of limping along, bitching and moaning the whole time, while pushing for warrantless searches and expecting the taxpayers to fund legislation to keep them alive, despite their relative uselessness.

On the other hand, Amazon has millions of happy customers. The same with Google. And the only tenuous thread I can see holding these apples and oranges together is their cloud services, which the record labels hate but can’t figure out how to shut down (yet).

Ignorance is pretty easy to spot out “in the open,” as well.

Anonymous Coward says:

Re: Re:

Actually they do charge sales tax in some selected states.

“Items sold by LLC, or its subsidiaries, and shipped to destinations in the states of Kansas, Kentucky, New York, North Dakota, or Washington are subject to tax.”

Those are the states that they have an actual physical building, or employee’s. The argument is that the other 45 states want sales tax too, sense online ordering is taking over a huge part of the economy.

Jordan (profile) says:

Re: Re:

What about the other side of the coin? Do brick stores charge you sales tax based on where you live rather then where the store is located?

To be fair maybe they should charge and pay sales tax to the state where the company is headquartered rather than to all 50 states.

Oregon would gladly welcome all the companies that want to take advantage of our 0% sales tax by bringing in the jobs.

Ed C. says:

Re: Re: Re:

You make it sound as though the Internet exist in an ethereal plane that is neither here nor there, yet everywhere! And Internet companies somehow magically materialize their products in our plane then they’re shipped. As ethereal as the Internet may be, its foundation is very much anchored in our plane of existence–billions of servers interconnected through a back-bone made of large-scale routers and millions of miles of fiber-optics. And those products are shipped from warehouses staffed by people, not pixies.

Anonymous Coward says:

Re: Re: Re:3 Re:

In which state does Amazon staff a warehouse where they do not pay taxes?

Historically, having a subsidiary in a state was not enough to create nexus in that state. Actually, I don’t know if there are any laws or case law which define nexus as anything other than “having a public facing storefront”.

Also, your cute attempt to insult my intelligence was just precious. Too bad you said something so stupid right before the insult; it really dulls the impact.

Jim (profile) says:

Re: Re: Re:2 Re:

This is actually the issue that Amazon is having with Tennessee. What is a “nexus”? They want to build a distribution center here, but do not want to collect TN sales taxes. They forced TX to make an agreement on this issue that TX now regrets. Notice that TX and TN do not have state income taxes. I don?t want to hear people from other states saying that “we need an income taxe”, this is a States Right.

The internet and its business have been around long enough that the time to start collecting taxes like other retailers should begin now. And don?t tell me that figuring out 50 or 100 tax rates is a pain, use your programming smarts and write that code once and it?s done.

Anonymous Coward says:

Re: Re: Re:3 Re:

And don?t tell me that figuring out 50 or 100 tax rates is a pain, use your programming smarts and write that code once and it?s done.

Actually there are only 7 states that make charging a sales tax nearly impossible, and it doesn’t have anything to do with programming smarts.

See, I’m a software developer, and my company actually resides in one of those 7 states. The problem isn’t that we “don’t have enough programming smarts”; the problem is that the law does not make it clear how to charge sales tax on an internet sale. For traditional “brick and mortar” you simply charge the sales tax for where your store is located. With an internet sale you have one big question:

Where does the sale “take place”?

At the internet retailers? At the address used for delivery? At the billing address?

The 7 states that make charging sales tax truly impossible each have county or “locality” taxes. For instance, in Alabama, there are special tax rates if your sale “takes place” within a certain distance of some sports stadiums. Also, the rate for each locality is updated quarterly.

I think there is one thing that really helps to bring home how difficult this problem is: There are no businesses or services provided that will guarantee to give a correct tax rate for every address in the United States. There are many paid services that will return a rate, but none of them promise accuracy and ultimately you as the retailer are responsible for any fines or penalties.

One last thing, there are estimated to be around 11,000 sales tax rates in the United States, not 50 – 100. No one really knows the exact number.


Re: Re: Re:2 It's just like Sears.

When I first saw Amazon and it’s kind, I immediately compared them to Sears. They are just mail order ventures with a different method of distributing a catalog. On the basic level they are nothing new. They are just the same old thing with a little fancy window dressing.

…so all of the old rules still apply to them.

The rules that applied to any mail order retailer in 1960 applies to Amazon in 2011. Nothing magically changes just because a new communications medium involved.

How some people approach this discussion is much like how anything old is suddenly made new at the Patent office if it mentions the internet or computers.

Michael Kohne says:

right and wrong

I agree with Jeff that they should only have to collect tax in states where they have a presence, nothing else makes much sense under current standard practices.

The problem in Texas seems to have come from the fact that Amazon has a subsidiary in Texas, instead of actual offices.

I haven’t dug into it, but it sounds like the subsidiary only does distribution for Amazon. Which makes it really not so much a separate company, and I can see where Texas is getting annoyed with them.

kryptonianjorel (profile) says:

Re: right and wrong

People are still required to report the sales tax on their income, but nobody does. Having Amazon and other online companies collect the sales tax is the best, and right solution.

At the end of the day, Amazon may not have a foot in my state, but if they are selling products to my state, then need to be collecting sales tax in my state

John Doe says:

Re: Re: right and wrong

At the end of the day, Amazon may not have a foot in my state, but if they are selling products to my state, then need to be collecting sales tax in my state

Uh, not according to the law they don’t. If you want them to pay tax in your state, get the law changed.

As for reporting sales tax on my income taxes, not going to happen. I am not going to track my mail order purchases throughout the year so that I can pay tax on them. Personally, I don’t see how that is even legal because that amounts to taxing interstate commerce which is against federal law. So until federal law changes, retailers aren’t going to collect the tax and consumers aren’t going to pay it.

AJBarnes says:

Why does nobody see that BUSINESS DOES NOT PAY TAXES??? Business collect taxes from people on behalf of the gub’ment. All they do is raise their prices to pass this cost along in the form of higher prices. Do you realize that fully 20% of your cell phone bill is taxes collected on behalf of the gub’ment?

PrometheeFeu (profile) says:

Re: Re:

Hm… The fact that tax incidence does not perfectly mirror who actually transfers the money does not mean that businesses (which means ultimately their shareholders) do not pay some portion of the taxes. To argue that businesses can pass on all tax increases directly to their customers is to argue that businesses can increases their prices without limit. This is obviously false in the vast majority of cases.

AJBarnes says:

Re: Re: Re:

I argue exactly that… and businesses DO increase their prices all the time to pass on any surcharge, tax, or other levy. Who else would pay the tax? Where does their revenue come from? Shareholders? Only if they a) invest or b) buy the product the company shares. And since EVERY business in the same field (i.e., telecommuncations) are affected by the same laws, they raise prices lock-step when new taxes are levied. And for sales tax, that’s just straight to my point… the customer pays that tax. The business just acts as a collector for the government. All businesses subject to sales tax collect the same tax. So we’re taxed on money from our employer and then taxed again in the prices of the products we buy, and then taxed again on the sales tax… These games are just ways of the gub’ment not wanting to take it all from you at once, rather, suck it out of you once blood cell at a time.

International Marketer says:

Tariffs are illegal

States collecting “taxes” from Amazon where they have no nexus is called a “tariff”, not a sales tax. Just because you don’t understand interstate law doesn’t make Amazon the bad guy. We had tariffs and outlawed them. I know for many of you, your opinion matters far more than law, the constitution, or what just plain works or doesn’t. I am not a history fan; but I have learned what it takes to sell to other states because I had to. Amazon abides by the laws of the land. As an FYI, in most states the gov’t makes 10x the amount that big oil makes on every gallon and they add NO VALUE, yet many are quick to criticize big oil and think nothing of HUGE taxes on each gallon. We don’t need more taxes, just living within our means.

phil (profile) says:

Why is he not collecting CA taxes?

Much of his argument doesn’t work in California where Amazon has over 1500 employees developing their Kindles, music services and other devices. Amazon has a big presence with its Lab126 and AtoZ companies in the Bay area. So why does he get away not collecting CA taxes? These employees certainly use the highways and enjoy the other services of CA.

Wight13 says:

Re: Why is he not collecting CA taxes?

This has nothing to do with Amazon’s presence in California regarding Kindles. This is about Amazons affiliate program of which there are approximately 10000 in California who earn an income recommending products which can be purchased through Amazon. These affiliates earn money from Amazon if someone purchases the item after clicking through their website. The person who clicked through and made the purchase may not reside in the state of California and the product may be shipped from another state and never even cross the state of California in transit but the state of California wants to collect taxes on the sale of the item. Anyone else see the problem here?

PT says:

Sales tax is a mess

How many of the pro-Sales Tax commenters here are actually registered to collect sales tax in their own state? I’m sure some must be. They would know, then, that there aren’t 50 tax rates for 50 states, but thousands of tax rates for states, counties, cities and in some cases even districts of cities, all of which you have to know (and keep up to date!) to calculate the correct rate for any delivery address. Not only that, but there are 50 different state rules for the way sales taxes are reported and the dates they must be paid, 50 legal jeopardies for an honest mistake or a late return, 50 opportunities to get audited… Just having to collect sales tax for a single state is burdensome enough. Who in their right minds would voluntarily agree to submit to this for all fifty?

TaxCloud (user link) says:

Re: Sales tax is a mess

Yes, but there are sales tax management services available that will take care of all of this for you — calculation, collection, remittance, even audits and exemptions. In fact, I work for a company that provides a service that does all this for free. It’s called TaxCloud.

In addition to calculating, collecting, and remitting sales tax, it automatically updates any changes to state and local sales tax rates — so retailers who use TaxCloud don’t need to worry about that. And should there be any audits, our company — — handles those, too.

How difficult it is to collect sales tax really shouldn’t be part of this conversation — technology has advanced to the point that it’s a non-issue.

PT says:

Re: Re: Sales tax is a mess

Yes TaxCloud, I’m sure your company would be prepared to handle it all – for a fee, which naturally would be passed on to customers on top of the sales tax. While I can hardly blame you for taking the opportunity to punt your product, I think it’s deplorable that such services even have a reason to exist. It’s the enormous number of people who make a fat living off tax law that makes it so resistant to simplification.

Anonymous Coward says:

Re: Re: Sales tax is a mess

How difficult it is to collect sales tax really shouldn’t be part of this conversation — technology has advanced to the point that it’s a non-issue.

I call BS. There are dozens of services that provide tax rate information but not one of them can guarantee accurate tax rates for every sale in every state.

What rate do you use when a house is split evenly in two tax jurisdictions?

Chargone (profile) says:

Re: Sales tax is a mess

makes me glad i live in a small country far away (though apparantly not far enough, all things considered) where we have one sales tax set at a national level that applies to everything, everywhere, all the time, exactly the same.

(though after it was recently increased, there’s some talk about dropping it again for only specific things like some foods and such, and there are extra taxes over and above that on petrol, tobacco products, and alcohol… and probably a few other things i know nothing about)

we have our fair share of problems, but an intentionally unamangably broken taxation system is not one of them.
(heck, i qualify for an invalids benifit from the government here… they actually eliminate a whole chunk of beaurocracy by just giving me less in the first place, checking my taxes as ‘payed’ so far as anything that cares is concerned, and carrying on (rather than going through the whole process of officially giving me more and then taxing it, which would not be unexpected…)

PT says:

Re: regressive?

Progressive? Only up to a point. Even a wealthy person can only spend so much money on goods. As income rises the surplus tends to go into investments, which not only don’t attract sales tax but are taxed federally at a much lower rate than earned income. I have no idea where the turnover point is, but at that point sales tax becomes deeply regressive.

The Dukeman (profile) says:

Mail Order and Internet sales tax

The methodology for which state’s sales tax should be paid by the consumer has always been backwards, even when the explanation is “follow the money”. A mail order/internet transaction still occurs the same way as physically going to the store: the transaction occurs when the merchant processes the sale (at THEIR location). So the tax rate should be that for the state where the merchant’s transaction processing center is located. The sale ALWAYS occurs at the merchant’s location, not the consumer’s location. It just doesn’t happen until the merchant accepts the money. It matters not what route the money takes to get there.

TaxCloud (user link) says:

The point of sales tax

“On top of that, the point of the sales tax is supposed to be about supporting the local infrastructure for those retailers (roads, and such). But if you have no local presence, there’s a much weaker argument that such taxation is needed.”

Actually, the retailer is kind of beside the point here. It’s the consumer who pays the sales tax, and that tax goes to support the consumer’s home state and community. The local infrastructure that sales tax supports is the consumer’s, not the retailer’s — which is as it should be, since the consumer is the one paying the sales tax. (This is what they mean when they say that online sales tax is “destination-based.”)

“The point of the sales tax is supposed to be about supporting the local infrastructure” — that’s still true. And as it always has, sales tax supports the local infrastructure of the consumer — whether that tax is collected by an online retailer or a local retailer.

Mark Gisleson (profile) says:

I used to write resumes

and from the mid-’90s to about 2003, I had thousands of online clients from all 50 states. As a one-person business, figuring 50 different quarterly sales tax returns would have been a half-time job all by itself.

Sales taxes are horribly regressive, and compound the enormous wealth inequity in this country. Bezos is right. (This time.)

Todd says:

Same treatment as retail sales

JEDIDIAH, You said it best.

Jim, you wrote “the time to start collecting taxes like other retailers should begin now.”

That’s precisely what is happening now, as JEDIDIAH details above, Amazon is being treated exactly like other retailers. Making them collect taxes where they have no such nexus, would be treating them differently than Sears Catalog sales were treated.

dig.photographer says:

Mail Order and Internet sales tax

Last couple of thoughts… when I buy stuff off the internet overseas, will we have companies in the UK, France, Germany, China… all collecting sales tax too? If they don’t have to because they have no presence in the state, then neither do companies in the US. Wonder if we’re just giving big companies yet another reason to figure out how to move out of the US… there are already 61 other countries with less corporate income tax… Wonder if NAFTA could be leveraged here… shipping might tick up a dollar or two from Canada but there would be no overhead / infrastructure like there is trying to keep straight state sales taxes… maybe these states can figure out more ways to motivate companies to move jobs out of the US 🙂

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