Another one bites the dust! Starting in 2014, Indiana joins California and a small handful of other states and will begin collecting sales tax on Amazon purchases. The rule of thumb has generally been that if an online store has a local presence in your state, then they have to charge sales tax for online purchases as well. But is it fair? Weigh in with your opinions as we discuss the points and counterpoints.
Online legal website NOLO explains the current rules:
If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.
It's interesting to note that while vice president for global public policy Paul Misner publicly stated that they supported sales tax collections for all online companies, Amazon is the only online company required to do so with this recent deal. Lobbying continues for Congress to pass federal measures.
Is it fair for brick and mortar stores to pass on the additional cost of a state sales tax while consumers buying online get to skip the fees? It has been argued that state sales taxes go towards things like roads and maintenance which are necessary to get to local stores, so why should online stores have to contribute to local infrastructure?
If you consider how many people research online and then go to their local store to check out a product hands on, it might seem an even split where the purchase is actually made. But price is price, and if a widget costs X at one place and X + 6% elsewhere, then the average shopper likely isn't thinking about the long term consequences of their immediate savings.
Is it fair for online companies to have an advantage of lower prices? It's a business advantage that doesn't seem quite fair. They already aren't having to pay the overhead expenses of your local store. Having only recently experienced an increase in sales tax in our native state of Maryland, we have to consider if sales tax were collected on online purchases then perhaps we might not have seen the increase. With local sales being pushed online, states are seeing less and less funds coming in. So while we'd like to save a buck or two, in the long term it just makes sense to charge sales tax for online purchases. Watch for it, in a few years we'll all be paying sales tax for every purchase we make - online or offline.
Read more:
• Will You Still Shop Amazon when they Charge Sales Tax?
• Amazon: Sales Tax Requirements
• Indiana officials reach deal with Amazon, • Sales Tax on the Internet
(Images: Frank Boston/Shutterstock, Arkady/Shutterstock)
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I don't know about fair or unfair, but I'm happy to live in Illinois. I'm an Amazon Prime member and whenever possible, which is pretty much most of the time, I buy what I need off of Amazon. Chicago's city sales tax is 10%! I also don't have a car, and so I order my dog's 40lb bags of food from Amazon -- free two day shipping right to my door and no sales tax? Plus, a few bucks cheaper than retail? I don't know what I'd do without Amazon.
Sorry to not support my local indie bookstores, but I also buy all my books from Amazon. I have several hundred books, and most came from Amazon. I just ordered a goliath of a book on the Hermitage, a two volume set which weighs so much even Prime members must pay $7 for additional shipping. But that still beats the $10 taxi ride from Barnes and Noble to my apartment.
Wow, I'm really an Amazon fangirl... a little embarrassing but what can I say. I also have never had trouble with their customer service when there's been an order problem (rare).
I live in a state that doesn't have an income tax -- just a large state sales tax. While I don't love the idea of getting charged more on my purchases, I want my state to get that tax money for education and infrastructure.
More taxes just means more of a drag on the economy. I don't think online purchases have put many brick and morter stores out of business. In fact, there are some purchases that I don't mind paying sales tax for if I can inspect the goods in person and get them immediately.
Living in a state where I am technically supposed to report online purchases and pay sales tax on them, this would just make it easier... and if I am paying it, I'll be just as happy when all the "cheats" are forced to pay it, as well...
On the Virginia tax return form, we're supposed to (honor system) report and pay taxes (approx. 5 percent) on all items purchased for personal consumption for which no sales tax was charged. Consequently, I end up paying taxes on all my Amazon purchases.
I was suprised by how many of my fellow VA residents simply left that section of the tax return blank. As much as I despise the homophobic rancor that frequently comes out of our state assembly and senate, I try to imagine that a majority of my taxes will ultimately find a way back to Northern Viginia to, as themoderngal stated above, fund education and infrastructure.
David, I'm curious how the mechanics of that work. Is it more simple than I am picturing in my head? Do you need to itemize every little thing or can you add it all up, and do they ever trouble you afterward to provide receipts, etc.?
My fiance and I have paid and still pay through the nose for income tax and of course we consume enough in the city of Chicago so that we pay for more than our share of the city's sales tax. When it comes to worrying about other people not pulling their weight tax-wise, I doubt most ATers need to look askance at one another.
Everyone pays taxes! Oh wait they don't have to pay for what reason? I can't think of any! Amazon uses the roads to deliver your products the schools to get trained employees etc. They should pay something. Everyone pays and everyone takes from the public sector. It is completely unfair for some group to do business and claim they don't use the public roads, laws, courts etc.
Those items are delivered by some form(s) of local delivery service and so, yes, unless businesses like Amazon come up with a Star Trek-like transporter system then I agree that they should be collecting/paying state sales taxes. Don't get me wrong, I really hate it, I just understand the justification. And, since my car died and I opted not to replace it (and try the joys of public transit & cabs), I've really come to rely on home delivery of goods that are too heavy to carry with me (pet food & pet litter, bulky items, cases of goods, etc).
Oh yes, starting work on that transporter.... Now.
@archdarling - I total up all my online purchases for the tax year and then multiply it by 4.5 or 5 percent and put that amount on the tax return form.
For what it's worth, working in the online retail industry, I can tell you that tax nexus issues are incredibly annoying, detailed, and time consuming. Having to figure out all the details on who gets taxed, what gets taxed, and when is so intricate, there is a role in my organization just for that purpose. And we deal with some of the largest online retailers and have been for over ten years. So, to Bibliovore's point - yes, an online small business owner would probably want to pull his/her hair out trying to get it all figured out, and it might even discourage some from selling online at all. Not that our infrastructures don't need all the support they can get, but our tax laws are FAR from simple to implement.
Also for what it's worth - if it's really going to come down to needing the additional sales taxes for state initiatives...then perhaps stronger income tax reform needs to actually happen as well.
Making us pay taxes for online purchases makes no sense. It is tantamount to making us pay taxes on what we buy outside our state and then physically bring back home. As far as I know, there is no tax police at our states' borders.
Brick and mortar stores should pay taxes for the public services (roads, utilities, etc.) that they use. Their prices are higher but they do have the advantage of convenience: we can physically examine goods in stores and buy them immediately.
I currently reside in Indiana and this just means I will be ordering less from Amazon. Although the real plan is to get the hell out of this place way before 2014...
None the less, I will use other retailers or figure something else out.
Not that I am complaining, but why just amazon? Pick on the big one? I wasn't entirely paying attention to the news when they were talking about this a couple months ago but the vague recollection I have was that other states tried to do this to Amazon specifically, and do you know what Amazon did. Pulled out their shipping facilities from that state. I know of 2 here in Indiana, one only being 40 min away (which is awesome for ship times...) Does Indiana want to lose all of these jobs? Add on that if Amazon did pull out, do we go back to no tax again?
I live in Indiana and I see this as fair. Amazon runs warehouses here, so it makes sense to pay money on our instate purchases. Before, Amazon was essentially getting a kickback for doing biz in the state. Also, very technically we are supposed to put the sales tax on our state returns anyway at the end of year. The state needs the money. If you love your library and school systems, you should not fear the tax man. Taxes are the price we pay for the things we collectively enjoy.
Amazon is large enough that it could calculate and collect sales tax from all over the country and absorb the overhead cost - its refusal to do so is all about maintaining its tax-free online market advantage.
California has a use tax, so technically every taxpayer should already be paying taxes on internet purchases that were not taxed by the seller -
Fair or unfair business advantages are not in the domain of what the government should be involved in. They're just trying to extort tax revenue from any conceivable source. If someone out there is avoiding paying taxes on something, gosh darn it, they will find out and put an end to it!
I buy often from Amazon because I have Amazon Prime and they have what I want, when I want it. Their selection is amazing, and their service and shipping speed is far superior to other online stores. Much of what I buy from them are items not available locally anyway.
Part of the taxes that local businesses pay cover emergency services; should Amazon be expected to subsidize those services? As far as the issue of the use of local roads to deliver their goods is concerned, don't the shipping services used by Amazon pay taxes to use those roads?
And it is certainly unfair to target Amazon specifically out of the millions of online businesses. What about buy.com, or overstock.com? I don't buy from Amazon specifically to avoid paying taxes but if one online merchant has to collect taxes then all online merchants should have to do so.
Sales taxes are intended to tax consumers -- not corporations. Amazon.com is paying taxes in the location in which it is incorporated and its distribution centers may be paying taxes in their respective locations as well (this depends on how Amazon is organized/accounting).
That said, as far as I recall, every state that I have lived in which has a sales tax requires that residents pay that tax on all purchases. This includes purchases made online and purchases made in another state that you bring back into your state. For illustration, here's the 2010 Pennsylvania tax guidelines:
"Purchases made over the Internet, through toll-free numbers (800, 866, 888, and 877), from mail order catalogs or from an out-of-state location are examples of purchases that would be subject to USE TAX. The tax rate is the same as the Sales Tax - 6 percent state plus a 1 percent local tax if the purchaser is located in Allegheny County and 2 percent in Philadelphia."
Note that this includes, for example, if I popped over to Delaware to buy a car, went to Ohio to buy computer equipment; or even went to Amsterdam to buy a tulip.
Basically, unless you are opposed to taxes wholesale (which is another question altogether), then I see no problem with Amazon.com charging local sales taxes. It simplifies taxes for individual filers and closes the window for potential underpayment of local taxes.
Chaos Amoeba:
You're right...
"Sales taxes are intended to tax consumers -- not corporations."
The Amazon customer is consuming / using what they purchased online - Amazon would not be taxed, but would be collecting the sales tax from their customers and moving it on to the appropriate state agencies.
I think its about time to time Amazon charges taxes. As much as I love skipping the taxes, in reality you SHOULD be paying taxes on online purchases. You just forget/don't know you are suppose to calculate it yourself and add it to your state tax form. This for me makes it a lot easier as Amazon is where I do about 90% of my online shopping.
I live in California, and we are required to pay tax to the state of California, whether Amazon collects it for us or not. Lots of people probably don't follow that rule, and that is why the state pushed so hard to get Amazon to do the heavy lifting for them.
The ONLY fair system that won't put an immense drain on internet shops (imagine having to collect, track, and report 50 different tax rates! It's insane!) would be for there to be a flat tax rate for all states for all internet purchases. This would also ease the burden on local business and would make it easier for consumers. Until then, it's a few states causing lots of headaches for online merchants for their own benefit.
It wouldn't really be that hard for a giant company like Amazon to calculate state taxes for different states. And as more and more purchasing goes online, the states are suffering for the lost taxes. Currently, conservatives are more likely to support sales taxes than income taxes, so if we want any services from our states (like education, roads, social services, police and fire departments, parks, etc) we'd better at least collect those. California is currently in the process of closing many of its state parks, and the schools and other institutions are really suffering. Sorry for the rant, but come on, people, we have to pay for these things!
I live in Seattle so all I've ever known is having a sales tax (10% in WA btw) on Amazon -They're headquartered here. However the savings you get from going online no matter the tax usually is the best way to go for the deal.
You’re right that the consumers pay the tax, not Amazon. But it’s clear that Amazon is getting some benefit from not collecting. I don’t know the ins and outs of it. As an Indiana resident I do know that we agreed in 2007 not to push Amazon to collect local taxes. Its part of the reason they moved to this state, and part of the reason they have pulled out of others.
If Amazon doesn't collect state tax to where their packages are delivered than the Police in those states should not care if the packages get stolen. They should not be able to use the roads to deliver them. The airspace to fly them. That is some of what the state and local taxes are collected for.
Yes, Amazon IS getting something out of not collecting taxes. You can tell by all the people that buy online because "free shipping and no sales tax!!" despite the fact that there is a chance they SHOULD be paying sales taxes .. do those who want to avoid paying taxes they should be paying, it turns out to be cheaper to go to Amazon, which benefits Amazon.
As for buying something in a neighboring state and not paying taxes, I believe that in some states (including mine, I believe), I am supposed to declare goods I bought outside the state.
Frankly having to pay more sales tax ticks me off. When the government spends $300,000 to build a TRAFFIC CIRCLE in a residential neighborhood (true story!), I start looking for ways to avoid subsidizing ridiculous farces.
I live in Washington, so I have *always* had to pay sales tax on Amazon purchases. That said, I'm in favor of making Amazon collect sales tax in other states they operate in. The states need the revenue, and Amazon has more than large enough infrastructure to support collecting the taxes.
I buy lots of stuff online (not just from Amazon), and I *know* that I'm supposed to pay sales tax to my state on everything I buy, but of course I don't. No one does. Because there's no way of policing it. The taxes that Amazon will be collecting aren't *new* taxes that anyone is putting on you; they're just enforcing rules that are already in place.
I am glad to see the ol' American ethos of "as long as things can be made and purchased as cheap as possible, who needs ethics?" alive and well in the AT comments.
It seems so silly to me that since you buy something online it is immune to sales tax requirements in your state (although, technically as others have pointed out, it is legally required).
@CEI-FACE - it isn't paying MORE sales tax.. it is paying sales tax...
As a proud Californian I want to pay state sales tax for Amazon purchases. California has been in real budget peril for years and needs the revenue of online purchases. The cuts to education and social services would be a lot less if the state had gotten the sales tax from all of the amazon purchases in the state. I would rather pay a small tax than see the infrastructure and higher education system in this state crumble.
@JSENPAI - yes, with the billions Amazon makes each year, I don't know they'd be able to hire enough people to handle all of this...
I live in a state where if you buy out of state, you owe 1%. Oh, and reporting is voluntary. As far as I know, no one has ever paid the tax.
If a shopper buys on-line they do not use the roads to shop which reduces traffic congestion and wear and tear on the roads which reduces costs for the local government. The delivery company does use the roads and it is paying local taxes for their usage as well as local property taxes. Think of 200 customers driving to the mall, or wherever, to buy products as opposed to one UPS truck making its rounds each day. Which activity costs the government more money? Now if the states and localities had reasonable sales tax rates this would not be an issue, however, for many people the sales tax takes a huge bite out of one's spendable income.