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Posts Tagged ‘Citizens for Tax Justice’

More Amazon Sales Tax Agreements

April 25th, 2012 No comments

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.

What Is the “Whole” Sale?

April 26th, 2011 No comments

Orbitz is an Internet travel company that adds significant convenience to making travel reservations.  Several times I have booked a flight and hotel room for a vacation at a great rate through the website within minutes.  I get a good deal, the airline and hotel get their cut, and Orbitz gets theirs.  Everybody wins, right?

Not so fast.

A report recently released by The Center on Budget and Policy Priorities claims that state and local governments throughout the U.S. are losing roughly $275 million to $400 million in sales tax revenue from business conducted by online travel companies (OTCs).  (Hat tip to Citizens for Tax Justice for alerting me to this report.)

The basis of this alleged deficiency is straightforward.  OTCs, such as Orbitz, apply the applicable sales and lodging tax rate only on the “wholesale” room rate that the OTC pays the hotel for the right to rent the room, and not on the “retail” room rate that is charged by the OTC to travelers who book a room through the OTC.  OTCs justify their position by claiming that the difference between the “wholesale” and “retail” room rate is a “facilitation fee” not subject to sales tax.

The report makes a fine counterpoint by comparing services provided by the OTC with those provided by hotels themselves:

The OTCs are providing the same kinds of marketing and room booking services that the hotels themselves engage in.  If the hotels may not deduct a pro-rated amount of their advertising and website operation expenses from the retail room charge prior to calculating applicable hotel taxes when they incur such expenses directly, there is no possible justification for compelling such a deduction when hotels pay an OTC to provide the same services.

I have to agree.  The uneven treatment by OTCs is further corroborated by the fact that non-Internet based travel agents use the “room” rate, not the “wholesale” rate, for sales tax purposes.

State and local governments have filed lawsuits against these OTCs in order to compel them to change their practice.  As the report notes, many of the applicable tax laws were written before the advent of the OTC industry.  As a result, I wouldn’t be surprised to see the courts in various jurisdictions take differing approaches in terms of statutory interpretation; this will likely result in contrasting court opinions.  In order to get what they want ($$$), many state and local governments may be required to amend their current tax laws in order to rectify the situation.

But don’t think that will necessarily be an easy task.  The OTCs claim that if forced to charge sales tax on the additional difference, this cost will be passed onto consumers; as a result, tourism travel will decrease.  Read the report linked above to read the Center’s response to that point.  This policy debate may stall progress in the state legislatures.

The current debates concerning sales tax on online purchases are actually taking place on both the federal and state levels.  Senators Durbin (D-IL) and Enzi (R-WY) plan to introduce to Congress the Main Street Fairness Act.  This bill requires online retailers to collect sales tax for states who join a formal compact.  I’ll save my thoughts on the “Internet Sales Tax” for another day.

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