A recent Bloomberg article revives the old Amazon sales tax debate (if we’re still debating this) so I thought I’d dig up the appropriate links and Wikipedia articles for everyone to reference again:
In 1992, the U.S. Supreme Court ruled that there was nothing inherently unconstitutional about requiring out-of-state retailers (such as mail order companies and internet retailers) to collect state and local sales taxes on orders shipped to in-state residents. The only question was whether imposing such a requirement would cross the line from an acceptable burden on interstate commerce to an unreasonable one. Technology had greatly eased the burden of collecting taxes for multiple jurisdictions, the Court noted, but concluded that Congress should make the call.[/blockquote]
The Court’s ruling left existing policy, under which remote retailers must collect sales taxes only in states where they have a physical presence or other tangible “nexus,” unchanged. But the Court explicitly invited Congress to revisit the policy. “The underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve” the Court wrote.
Today, software and related tax services have largely eliminated any remaining difficulty in calculating and remitting sales taxes for the country’s many state and local jurisdictions. Yet Congress has so far failed to extend sales tax collection to online retailers.
So, first: the argument presented by mail-order retailers against their obligation to collect the tax [22 years ago, pre-Internet, pre-online-retail, pre-Amazon] has been made irrelevant by technology.
Second, the Supreme Court took the time to point out Congress could reverse their decision at any time with simple legislation.
Most importantly, though,
“[W]hile remote sellers are not required to collect sales taxes, the tax is still owed by the individual who made the purchase. Individuals are supposed to keep track of these purchases and pay an amount equivalent to the sales tax as a “use” tax on their state tax returns. Less than 1 percent of people do, however, and the use tax is almost impossible to enforce, which effectively exempts these purchases” [emphasis mine]
And again, from another source: http://www.nolo.com/legal-encyclopedia/sales-tax-internet-29919.html
Consumers who live in a state that collects sales tax are technically required to pay the tax to the state even when an Internet retailer doesn’t collect it. When consumers are required to pay tax directly to the state, it is referred to as “use” tax rather than sales tax.[/blockquote]
The only difference between sales and use tax is which person — the seller or the buyer — pays the state. Theoretically, use taxes are just a backup plan to make sure that the state collects revenue on every taxable item that is purchased within its borders. But because collecting use tax on smaller purchases is so much trouble, states have traditionally attempted to collect a use tax only on big-ticket items that require licenses, such as cars and boats.
And from Wikipedia: http://en.wikipedia.org/wiki/Use_tax
“A use tax is a type of excise tax levied in the United States by numerous state governments. It is assessed upon tangible personal property purchased by a resident of the assessing state for use, storage, or consumption in that state (not for resale), regardless of where the purchase took place. If a resident of a state makes a purchase within his home state, full sales tax is paid at the time of the transaction. The use tax applies when a resident of the assessing state purchases an item that is not subject to his home state’s sales tax. Usually, this is due to out-of-state purchases, as well as ordering items through the mail, by phone, or over the Internet from other states. The use tax is typically assessed at the same rate as the sales tax that would have been owed (if any) had the same goods been purchased in the state of residence.” [emphasis in original]
The states of Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don’t charge income tax so a majority of the state budget has to come from other sources, like sales tax. (Alaska and New Hampshire also don’t charge a state sales tax, but I’m sure local jurisdictions within those states do.)
“In the United States, every state with a sales tax law has a use tax component in that law applying to purchases from out-of-state mail order, catalog and e-commerce vendors, a category also known as “remote sales”. As e-commerce sales have grown in recent years, noncompliance with use tax has had a growing impact on state revenues. The Congressional Budget Office estimated that uncollected use taxes on remote sales in 2003 could be as high as $20.4 billion. Uncollected use tax on remote sales was projected to run as high as $54.8 billion for 2011.” [emphasis mine]
It is not that internet purchases are “tax free” — they’re not. It’s a matter of who collects the tax. If you want to argue that internet purchases shouldn’t be taxed, well, take that up with your elected representatives — but as noted above, this went all the way to the Supreme Court and the ruling came back that tax is still owed even if it is not collected at time of purchase — in both the 1992 case, Quill Corp. v. North Dakota and the earlier 1967 case cited as precedent, National Bellas Hess v. Illinois Department of Revenue. No one was arguing that the tax was not due, only that making out-of-state companies collect the tax constituted an unfair burden (at that time, while suffering either 1967 or later 1992 technology). The tax due is not a matter of where the company headquarters is located, or which warehouse it ships from, of if there is a ‘nexus’ in your state: it’s a matter of where you, the purchaser, live.
When you buy a book from a bookstore, or buy your groceries, or liquor, or a new couch, or a car: sales taxes get collected at the register (as listed on your receipt). Retailers send a check to local and state governments monthly, and the sales tax revenue is an important part of what keeps your local municipalities running: it would be very hard to make payroll (for say, firefighters and police officers, and to be fair, also the really awful people at the DMV – but they deserve a paycheck too) without this stream of income. Even if everyone dutifully paid the Use Tax on internet purchases (a big if) without sales tax revenues trickling in over the course of the year, your city or county would have to borrow the money to make payroll, and then wait until April (or later) to pay those loans back, incurring interest and fees that eat into already small budgets.
“In states that have the tax, households reduced their spending on Amazon by about 10 percent compared to those in states that don’t have the levy. For online purchases of more than $300, sales fell by 24 percent” – Bloomberg, citing a recent study by researchers at Ohio State University
…Well, I think that’s all we need to know about why Amazon spends millions to fight State governments attempting to collect the tax.
Eventually, Amazon *will* collect sales taxes — even if it takes an Act of Congress and a Supreme Court decision, it’s coming. But it’s also certainly to Amazon’s advantage to put off that date for as long as they possibly can.