Amazon now collecting sales taxes on majority of purchases

collecting sales taxes

collecting sales taxes

Amazon is now collecting sales taxesThis November, Amazon reached an important milestone for sales taxes. The majority of consumers that shop with the online retailer now need to pay sales taxes on their purchases. This is because 16 state governments, home to roughly 163 million Americans, have passed laws requiring Amazon to begin collecting sales taxes from residents even though the sales are online. Legislators in Massachusetts, Connecticut, and Wisconsin are the latest to pass these types of bills.

This adds momentum to the passing of the Marketplace Fairness Act. Since many state governments have already passed this type of online regulation, a national bill would create less of a change to the current environment.

Read more at the Wall Street Journal

Amazon’s vested interest in universal online sales tax

universal online sales tax

universal online sales tax

Marketplace-Fairness-Act
With the addition of a new Amazon distribution center in Kenosha, WI, the number one largest online retailer will soon be collecting sales tax from almost 50% of the American population.

Amazon will begin collecting Wisconsin sales taxes on Nov. 1 and the state expects to benefit to the tune of $30 million per year.

universal online sales tax

Beginning Nov. 1st, Wisconsin will become the 14th state Amazon collects sales tax for. The mega-retailer has arrangements to add at least 6 more states to that list over the next 3 years.

Amazon currently has nexus is 18 states. Nexus, a physical in-state business presence, has long been the determining factor behind which businesses have to collect sales tax. Nexus is created by brick and mortar stores, distribution centers or warehouses, call centers,  offices, sales people, and sometimes just by sending an employee to a convention.

The mega-retailer already collects sales taxes in Arizona, California, Georgia, Kansas, Kentucky, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington and West Virginia. Amazon has a physical presence in all of those states except for Georgia and New York.

Georgia passed a law in January requiring all online retailers doing business within the state to collect sales taxes and Amazon complied starting last September. New York won a court appeal upholding the state’s right to claim nexus is created when an out-of-state retailer pays in-state affiliates a commission to promote their products or services. New York refers to this as “click-through nexus”.

Amazon shut down its Connecticut affiliate program back in 2011 to avoid click-through nexus in that state but may be thinking about restarting the program as it recently announced that it will begin to collect Connecticut sales taxes and invest $50 million over the next two years for a jobs initiative.

Amazon has distribution centers in New Hampshire and Delaware where neither state has a sales tax. It also has centers in Indiana, Massachusetts and Nevada and has agreed to begin collecting sales tax in these states in the near future.

Amazon has acknowledged that it has nexus in Tennessee and South Carolina, but made special deals with those states which allow it to postpone sales tax collections for a time. Tennessee Gov. Haslam agreed to hold off on an Amazon tax until 2014 if the retailer agreed to send notifications to all customers about how much tax they owed on their purchases going back through 2012. South Carolina made a deal that exempts the company until 2016 in return for a promised distribution center and its 1,200 jobs. The state left itself an escape clause saying the agreement would be nullified should the Marketplace Fairness Act pass and create a standardized set of federal regulations.

This patchwork of regulations, state-by-state agreements and endless legal battles seems to be the main impetus behind Amazon’s support for the Marketplace Fairness Act or universal online sales tax. This law would significantly ease Amazon’s burdens while simultaneously increasing the burden on other smaller online retailers. Amazon stands to significantly widen its lead over the competition.

Virginia joins crowd in demanding sales tax collection

Virginia sales tax collection

Virginia sales tax collection

Amazon begins sales tax collection

Virginia passed a law requiring  collection of sales taxes by large online retailers like Amazon.

Virginia has become the latest state to start requiring large online retailers to begin sales tax collection from Virginia residents. This new law went into effect as of September 1st, 2013. The Virginia state sales tax of 5.3% now applies to out-of-state sellers that maintain a distribution center, warehouse, fulfillment center, office, or similar location in Virginia that facilitates the delivery of tangible personal property.

Amazon for example now needs to collect sales taxes from Virginia residents because it has two large distribution centers in the state. This law does have an exemption for retailers that have less than $1 million a year in revenue.

Amazon changes attitude toward collecting sales tax

amazon collecting sales tax

amazon collecting sales tax

Amazon sales tax

For years, Amazon.com has instructed its employees to limit business activities in certain states in hopes it could avoid establishing nexus.

In an interesting shift in attitude, Amazon.com seems to be softening its hard-line stance against state demands for it to collect sales tax. Along with lobbying for a single nationwide sales tax, Amazon is starting to settle lawsuits with states and, in many cases, has agreed to begin collecting sales tax at future dates.

Up until now, Amazon has maintained that online retailers with no physical presence in a state did not have nexus and did not have to collect sales taxes. Amazon limited business dealings and placed travel restrictions on employees to states that it viewed as “bad”, meaning these states wanted Amazon to collect sales taxes on purchases made by residents of those states.

Amazon even went so far as to pull the plug on its marketing affiliates in “bad” states. It followed through with one such threat in Colorado in 2010 after the state enacted a law that would have required Amazon to report all online sales made by Colorado residents. Colorado’s law was thrown out after it was determined to be unconstitutional because it would have “discriminated against online retailers.”

Amazon has put up a costly legal battle against Texas, threatening to remove its warehouses, and against California, threatening the removal of both the warehouses and affiliate programs. Both lawsuits have now been settled, with Amazon promising to start collecting sales taxes in Texas on July 1, and California in September of this year. Amazon has even promised to sweeten the pot with the promise of new jobs in both states.

Amazon has admitted nexus and collected taxes in Kansas, Kentucky, North Dakota, New York and Washington for the past 5 years, mainly due to the presence of warehouses in those states. Along with Texas and California, Amazon will begin collecting tax in Pennsylvania this year. Promises have been made to start collecting tax for New Jersey and Virginia in 2013, and Indiana, Nevada, and Tennessee the year after that, and looking out to 2016, South Carolina.

Arkansas, Connecticut, Illinois, Vermont, North Carolina, and Rhode Island have all passed legislation calling for what is often called an “Amazon tax” even though it would impact most, if not all, online retailers. Recently, brick and mortar retailers have begun to band together and put up an organized front in the form of a well funded campaign supporting “Main Street Fairness”. It seems inevitable that Amazon would bear the brunt of the financial burden it would take to fight future lawsuits.

While it may seem unlikely for a mega-company such as Amazon to back down, it is probable that they simply balked at the potential legal costs. There is also the possibility that if Amazon could be seen as cooperating with the states their plea for a single nation-wide tax legislation could gain some traction in congress.

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Amazon backs down in Texas sales tax fight

sales tax fight

sales tax fight

Amazon.com to collect sales tax in Texas

Amazon.com settles lawsuit over collecting sales tax in Texas

Amazon.com lost the sales tax fight with Texas and has agreed to a settlement which, among other concessions, says they will begin collecting sales tax on all purchases made by Texas residents starting July 1, 2012.

Amazon has agreed to drop the threat to relocate their Texas-based warehouse and to create 2,500 new jobs in the state. They will also make $200 million in capital investment in Texas over a four-year period.

Texas has agreed to “forgive” the $269 million in unpaid taxes the state said Amazon owed.

Paul Misener, Amazon’s vice president of Global Public Policy said “We strongly support the creation of a simplified and equitable federal framework, because Congressional action will protect states’ rights, level the playing field for all sellers, and give states like Texas the ability to obtain all the sales tax revenue that is already due.”

Amazon’s new-found support for Sen. Dick Durbin’s (D-Ill.)  Main Street Fairness Act, makes greater sense as more and more states continue to bring multi-million dollar lawsuits against the company.

Currently, Amazon only collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington. Starting in July, Texas will be added to that list. Amazon also agreed to start collecting sales tax on online items in California starting next year, and in Arizona in 2014.

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