Amazon.com is currently the world’s largest online retailer. Many of Amazon’s products, if sold in brick and mortar locations, would be subject to sales tax in the state of sale. And it’s at least an arguable—if not compelling—case that those same products sold on the internet would be subject to sales tax in the state where the consumer sits.
Currently, Amazon.com collects sales tax in only five of 45 states that impose a sales tax. The five states: Kansas, Kentucky, New York, North Dakota, and Washington.
Many if not all of the other 40 states also want their share. Amazon has responded to such demands by threatening to end or actually ending relationships with local affiliates or by simply leaving a state.
Most recently, however, Amazon appears to be backing down. Within the past year Amazon has reached agreements with California, Indiana, South Carolina, and Tennessee to collect sales tax at a later date.
The Citizens for Tax Justice is reporting the latest developments, including an agreement with The Silver State:
- In Nevada, Amazon.com will begin collecting sales taxes in 2014 under a new agreement announced on Monday. The company already has major warehouses and distribution centers in the state. Amazon’s agreement with Nevada is similar to deals struck in California, Indiana, South Carolina, Tennessee, and Virginia.
- As in Nevada, Amazon’s deal to begin collecting sales taxes in Tennessee won’t take effect until 2014, but a lesser known part of that agreement has already taken effect. Amazon is mailing notices to all its Tennessee customers from throughout the past year letting them know that they may owe sales tax on the items they bought from the company, even though Amazon didn’t collect those taxes for them. Similar annual notices will be sent by February 1st in both 2013 and 2014.
- The Massachusetts Main Street Fairness Coalition is continuing its calls for the state to require that Amazon collect sales taxes, and The Boston Globe just chimed in to support the idea as well. As the Globe explains, the company’s new offices in Massachusetts should be enough to bring the company within reach of the state’s sales tax collection laws.
This piecemeal process is far from ideal, but it’s progress. As far as a possible national solution, federal lawmakers are making efforts. But as everyone knows, controversial pieces of legislation on Capitol Hill are unlikely to gain significant traction during an election year.
The federal versus state debate in this context in some ways draws similarities to the debate on the legalization and regulation of internet gambling. Under both the sales tax and gambling tax regimes, the generated revenues end up in state coffers. Each state should reserve some significant powers to regulate these areas in the internet space to meet its own needs.
A federal bill that sets minimum standards and offers each state the flexibility for how to structure its own tax system sounds like a win-win to me. But again, that requires Congress to get something done. I’m not holding my breath.