I like Amazon a lot. (Currently a Prime customer and have a California-based site that makes a small trickle in affiliate fees.) I want taxes to be low or non-existent.
But the cross-border sales-tax exemption is broken in the modern era. There's no reason to give such a big de facto price advantage to distant retailers. The infrastructure that makes a state's residents good Amazon customers – high-paying jobs, spacious homes in attractive communities with full utilities, roads for overnight deliveries – needs to be paid for with broad, low taxes on all who benefit.
Amazon benefits. And Amazon has multiple California subsidiaries.
Amazon hasn't argued against 'Use Taxes', so it's not like they're making a principled stand that states have no legal right to this 8-10% of the purchase value. Amazon just doesn't want to collect it, which essentially helps their customers evade a legal (but usually-ignored) Use Tax.
Thing is, Amazon and pretty much every other online retailer supports the streamlined sales tax. It isn't about not collecting it; it is about the reporting requirements which are quite frankly nuts.
It isn't really about fair share in the end. These laws are pushed by big-box retailers that just want to hurt the advertising efforts of online retailers. SB234, the worst of these bills, didn't limit it to just affiliates - almost any manner of electronic presence would qualify, including Google Ads and web hosting.
Now, that said, I do want to see the tax codes revamped. You just can't do it this way because it is unconstitutional (it violated the commerce clause) and because it gains no revenue in the end (affiliates are terminated or just leave the state). This bill is supposed to close a budget gap but it will instead cost the state in lost income, payroll and property taxes from the businesses that leave.
Not to mention the lawsuits that will inevitably follow to challenge it....
The current situtation is sustained by Congress, which is where it should be fixed/addressed. As a bonus, this would seem to clearly be 'inter-state' commerce so no arguments about an expansive commerce clause interpretation if Congress does act.
> Amazon hasn't argued against 'Use Taxes', so it's not like they're making a principled stand that states have no legal right to this 8-10% of the purchase value. Amazon just doesn't want to collect it, which essentially helps their customers evade a legal (but usually-ignored) Use Tax.
I don't believe that is quite correct. I recall Amazon stating that they are fine with the idea of collecting use taxes for states their customers are in, IF IT CAN BE DONE REASONABLY.
Here's the problem--it is almost impossible to figure out reasonably what the right tax amount is. Let me illustrate for one state. My employer is in Washington, so we have to collect tax for sales to Washington residents. A given customer is subject to the state wide sales tax, their county's sales tax, their city sales tax, and possibly taxes from other districts.
In total, there are nearly 3 million tax "locations" in Washington. There is a table available from the state that gives the total tax rate for each of these locations.
The "location" boundaries do not necessarily align with zip code boundaries, so the only completely accurate way to determine the tax rate on a customer is to get their street address and look it up in another table the state provides, which lists every valid address in the state and its tax rate. Looking up addresses is very hard, because people often give addresses in some form that doesn't match the official form of their address. You need to deal with things like people who live on "Martin Luther King" street saying they live on "MLK" street, or just "King" street (and of course there are "King" streets that are not "Martin Luther King" street...).
So we cheat, and go by zip codes. If we have the zip+4, we take the highest rate of any location that overlaps that zip+4. If we only have the 5 digit zip, we take the highest rate of any location that overlaps that. This likely means that for many customers we are charging them more tax than we actually have to. We could try to be more sophisticated, and perhaps figure a weighted average based on population information or something like that--that would be fairer to the customers on average, but would probably not convince the state auditors that we collected enough tax, and that results in having to pay up what the state calculates and they always seem to err on the side of more tax.
Now multiply this by 50 if you have to collect for every state. You'll have auditors from 50 states demanding you justify the amount you are turning in. You greatly increase the chances that some customer who happens to know the tax rate for his exact location will get pissed that you charged him too much and will make trouble.
You'll have 50 different databases you'll have to download at least quarterly, and some more often whenever the legislature fiddles with taxes. They'll probably be in almost as many different formats.
It would simply be a nightmare. A big company like Amazon could probably handle it, but it would be annoying for them. For smaller companies, like ours, where there is one person dealing with sales taxes, it would be a nightmare. So I'm very very very glad Amazon is fighting this.
This HAS to be handled on a national level, with either one rate per state to collected by out of state internet sellers, or one rate per 5 digit zip code, and the rate data needs to be available from a single source, and if a state or locality changes a rate other than once a quarter, the requirement to collect the new rate should not go into effect until the quarter boundary.
It's not that hard. Amazon runs Target.com... for which it collects sales tax for every state where Target has a physical store. So it's already a solved problem.
Smaller business could easily outsource this determination; even if every address in the country had its own sales tax rate that's still a tiny database by modern standards.
Still, simplification is a good idea, such as your suggestion there be one rate per state for outside retailers. Perhaps having to face the patchwork would motivate online sellers to lobby for that improvement. Right now they're still shooting for "0%" and I think they have to lose that battle before the necessary simplification can occur.
All fair points, but let's get out of the clouds of idealism and look at the actual effects of the law.
This law will move start-ups out of California without raising a single penny in new revenue. It may actually decrease the tax base by moving income out of the state!
So, yes, if you want CA to 'make a stand' to prove a point, fine -- but it makes no pragmatic sense for anyone.
Many states are now acting on this same issue, so the number of places a start-up could flee to is rapidly dropping.
New York, Texas, North Carolina, Colorado, and Illinois are definitely out. And Amazon already collects sales taxes for North Dakota, Kansas, Kentucky, and Washington.
So if your start-up is so sensitive to affiliate revenues you'll avoid all those states, have fun wherever you wind up. I suppose Portland remains a nice spot – no Oregon sales tax at all.
I think you're confused -- Amazon has affiliates in both Washington and New York; affiliates in those states are fine. And so are affiliates in the states that already collect sales tax that you list -- which makes me think you don't understand the issue at hand.
Add in the 5 states that don't charge sales tax, and there are plenty of great options to locate a business.
You're right that I was confused about the effect of being in a state where Amazon already has to collect sales tax. (I was thinking of tax-minimizing consumers, rather than the affiliates). When Amazon has a presence that requires them to pay sales taxes in any case, they have no credible threat to end affiliate payments. So, it's safe to remain an affiliate in those places. A happy result for Amazon, affiliates, and the States, apparently.
California and others want that same deal.
In New York, Amazon threatened to pull out but is temporarily paying sales tax (some reports suggest into escrow) and maintaining the affiliate program pending a legal challenge. Amazon may yet wind up losing their challenge, in which case they would have to decide whether to treat NY like other states where they collect sales tax – which would render being an affiliate safe – or to follow through on their affiliate freeze-out.
New York has essentially chosen the same course as California, so it will likely be resolved the same way in both states. Other states, likely including Texas and Massachusetts pending current legislative battles, are following this approach as well.
My point is: this isn't just a California-shooting-itself-in-the-foot situation, and a company can't just jump to anywhere-but-California to get back into the affiliate program. Many states, including many other top tech and business centers, are treating Amazon the same as California.
Just to clarify - Amazon has DROPPED its affiliates in most of those states. In CO in particular (a state I know more about than any of the others), they sent a letter to all affiliates immediately terminating their association with Amazon as soon as the law was announced. Much as they just did with California.
Simple fact is, affiliates don't meet the definition of a "nexus" in a state, as determined by the Supreme Court in the early 90's. This is just a quick money grab by a lot of bankrupt states, who are counting on Amazon to just bend over and take it. Unfortunately for them, they're actually winding up costing jobs and income tax revenue for their state, instead of increasing sales tax revenue.
New York and Washington AMZN affiliates are fine, because Amazon recognizes that it has what meets the legal definition of a "nexus" in those states, and therefore needs to collect sales tax revenue - affiliates or not.
A perverse incentive of the current situation is that Amazon is prevented from having distribution warehouses in California even though that is where much of their stuff is shipped. How many jobs are we losing now and how much extra CO2 is getting spewed into the air because of this nonsensical tax exemption?
It is one interpretation of Constitutional language, that hasn't been construed to say states can't tax these same purchases via a Use Tax. Only that states can't require an entity with no local presence to collect the Sales Tax.
Subsidiaries and affiliates are reasonably a local presence.
Congress should act; it definitely has the Constitutional power over interstate commerce and has been derelict on this issue.
But the cross-border sales-tax exemption is broken in the modern era. There's no reason to give such a big de facto price advantage to distant retailers. The infrastructure that makes a state's residents good Amazon customers – high-paying jobs, spacious homes in attractive communities with full utilities, roads for overnight deliveries – needs to be paid for with broad, low taxes on all who benefit.
Amazon benefits. And Amazon has multiple California subsidiaries.
Amazon hasn't argued against 'Use Taxes', so it's not like they're making a principled stand that states have no legal right to this 8-10% of the purchase value. Amazon just doesn't want to collect it, which essentially helps their customers evade a legal (but usually-ignored) Use Tax.