Amazon May Support Internet Sales Tax Legislation


Amazon, the world's biggest online retailer may be close to publicly supporting legislation that would create a national sales tax system according to the Washington Post:

Supporters of a national Internet sales tax proposal are negotiating with Amazon.com in a bid to win an endorsement from the largest online retailer for legislation introduced today in Congress. The legislation would put the federal government's stamp of approval on a state-led effort to require online retailers to apply sales taxes to nearly all of their transactions. In return, states would simplify their complex tax laws to make collecting taxes easier for Internet businesses.

This is a subject I've grappled with since we started iMALL. Because we supplied ecommerce services to all kinds of merchants in all 50 states and many foreign countries, we had to be able to calculate and collect sales tax. Any current system is, at best, an approximation because of the complexity. There are over 10,000 separate sales tax jurisdictions in the US alone and deciding who's in which ones is nearly impossible--so you guess. And the problem doesn't end there. Different items are taxable in one state but not in another. For example, juice is taxable in some states and not others and in some it depends on the amount of "real fruit juice" in the juice. In some states candy is taxable, in others candy is taxable, but not gum... You get the point. Oh, and did I mention that it changes all the time?

There are a lot of misconceptions about sales tax reform:

  • This has nothing to do with the so-called "Internet tax moratorium." That is a moratorium on taxing Internet service, not the good bought and sold on the Internet.
  • You already owe this tax, the government just doesn't have a good way to collect it. At present, a merchant doing business in Michigan can't be compelled to collect sales tax for the State of Utah unless they do business in Utah.
  • This legislation would apply not only to Internet purchases, but to all cross border transactions, including catalog and mail order like the Home Shopping Network.
  • The amount of uncollected sales-tax due to online and mail-order purchases is actually relatively low at $3-4 billion per year.

Many brick and mortar merchants have started collecting it already. Wal-Mart and Barnes and Noble being two. They were on shaky legal ground to begin with, but the reality of the business is what finally caught up with them. Trying to maintain the facade of independent business units for online and meatspace sales cut into their ability to offer the kind of services that people want and only a retailer with a physical presence can provide. In-person returns of online-purchased goods, for example.

If the amount of uncollected tax is small, why bother? I think there's a pretty simple and easy to support answer: fairness. Governments will always find a way to get all the money they need. If they're getting shorted in online sales, they'll make it up in offline sales by raising taxes. I don't see it as an issue of whether the government gets the money or not. I see it as an issue of whether we, as a society, want to penalize merchants who have physical stores. I think that sends the wrong signal and creates unhealthy incentives. We ought to make the playing field as level as possible.