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Amazon at war over sales taxes

States are passing laws to force Amazon to collect sales tax, and the online giant is fighting back.

By MSN Money Partner Mar 15, 2011 11:50AM

This guest post comes from Laura Heller at


Anyone who's saved money with sales-tax-free purchases online should pay attention: All that may be coming to an end as states try to recoup revenue to fill gaping holes in their budgets., as the largest Internet-only retailer with $34 billion in revenue last year, is facing the brunt of this pressure and is fighting back with all of its might. But retailers like and Zappos will also be affected. Post continues after video.

What's at stake? Nationally, online sales are growing by leaps and bounds: Independent research firm Forrester estimates $53 billion was spent online during the 2010 holiday season alone and projects consumers will spend roughly $248 billion online -- or 8% of all retail sales -- by 2014. That's a lot of lost tax revenue.


We're supposed to pay but we don't

The issue of collecting sales tax from goods sold online is contentious, complicated and ongoing. Technically, everyone should be paying sales tax on Internet purchases. If a retailer doesn't charge it, law-abiding citizens are supposed to offer it up voluntarily. But few know this, and rarely do states go after individuals.


In 1992 the U.S. Supreme Court actually ruled that retailers don't have to collect sales tax unless they have a physical presence in that state. So if a local electronics store ships nationally, only its local customers will pay the sales tax. National chains, like Sears, must collect state sales tax for online orders from everyone, while online-only retailers like don't collect from anyone, with a few exceptions (Kansas, Kentucky, New York, North Dakota and Washington).


But a lot has changed since 1992, and now states are trying to force the issue, claiming a retailer like Amazon must collect sales tax simply because of a physical presence, any physical presence. Proponents of taxing these retailers say it gives an unfair advantage to one class of merchant, and the Main Street Fairness Act seeks to even out the playing field.


But fairness isn't as good a motivator as money, and now that states are in the red, we can expect the issue to really heat up.

The battlefield currently has many fronts. Here's a rundown:

  • In Texas, where Amazon has a distribution center, the state is demanding $269 million in taxes, estimating it loses nearly $600 million a year in tax revenue from online sales. Amazon is appealing the case and has threatened to close the distribution center, a move that will cost much-needed jobs.
  • In California, there's pending legislation that claims if Amazon has affiliates in that state, those affiliates represent a physical presence and therefore Amazon must collect taxes. The complication is that the affiliates are all local businesses that make money simply by linking to Amazon's site. If a visitor to an affiliate site clicks on the link and makes a purchase, the affiliate gets a percentage. These businesses in turn pay state taxes on that revenue. In California and other states where this is coming up, Amazon has threatened to drop the affiliates.
  • In Illinois, Gov. Pat Quinn signed into law a state version of the Main Street Fairness Act on March 11, classifying local affiliates as physical locations and requiring online retailers to collect tax in the state. And on March 13, Amazon gave notice to affiliates that they were being dropped. The CEO of an Illinois-based coupon site told the Chicago Tribune that he is seriously considering a move to neighboring Indiana.
  • But there may not be many places to hide, as other states are following suit. The Vermont House of Representatives has passed similar legislation, sending the law to its Senate.
  • Arizona, Connecticut, Hawaii, Minnesota and Mississippi are also considering "Amazon laws." Colorado, North Carolina and Rhode Island passed similar laws, and Amazon did indeed break ties with affiliates there, although a federal judge has issued a temporary injunction blocking the Colorado law while it's appealed.

One thing is for sure: States will continue trying to get their due. Shopping online is certain to get a whole lot more confusing -- and expensive.


More from and MSN Money:

Why should Amazon be punished for being smart enough to put together a business plan that saves the consumer money on the products they purchase and also offer no taxes!  This is another money grab by the governments to get more funds for them to squander.  No matter how much money they collect in taxes they will spend it all and then some.  Leave Amazon business model alone.
Mar 15, 2011 10:00PM

So the government once again shows how stupid they are, they will drive away jobs and all the payroll taxes and the employees who buy where they live who pay taxes and lets not forget that these employees will be un-employed now so the state will be paying them for unemployment that the state caused.

Now lets not forget the businesses that sell products and they are transported to the warehouses and don’t forget the delivery services who pick up and move the products around, so you have fuel taxes and licensing taxes and all sorts of other fees that now won’t be collected, and lets not forget the business taxes Amazon would be paying with a location which could include property taxes as well as rental fees and they do need to do a certain amount of repairs like light bulbs maintenance on equipment so any or all those companies will loose business which will trickle back to the state as less and less taxes.

Businesses that loose money or go out of business because of the state governments lack of foresight might sue the state.

All this boils down to is that Amazon will move out of the USA like so many other companies and ship items in by UPS or FedEx.

I really wish that state and federal governments would look at the big picture before their narrow minded do going gets us all into further trouble then we need to be in, perhaps no one should be allowed to run a government who hasn’t first passed the test of SimCity they might then learn to avoid their blunders causing a domino effect in the direction they didn’t want to go.

Even if they collect the current blood money they want from the past it will only mean in the future they will have even less revenue to speak of.

Pity the fools who can’t see how foolish they are for they will never learn anything good.
Mar 18, 2011 11:04PM
I have a fair bit of sympathy for small businesses trying to compete but none for the state governments. We have a budget crisis here in CA because Sacramento is incapable of wisely managing the funds it takes in (which are ample since we have always had very high income and sales taxes). Now they want to tax online purchases out of "fairness". Well, if 8% of purchases are made online, why aren't they offering to drop the state sales tax rate by a corresponding amount so that the average person comes out even? The obvious answer is that this has nothing to do with fairness and everything to do with extracting more out of our wallets. Which is, of course, VERY unfair to all of us. Go Amazon!
Mar 28, 2011 2:38PM
As usual, legislators screw up, citizens suffer. Quit electing these free wheeling spending democRATS. They will never have enough money. You have to withhold the money and make them toe the line. Give up some of their benefits, especially pensions. Elected legislators at all levels do not deserve persions.
Mar 16, 2011 2:50PM
Doesn't Amazon own Zappos?  Makes whoever wrote this article look pretty incompetent.  That is all.
Mar 15, 2011 9:52PM
The last poster implies that Amazon and other online retailers are exempt from sales taxes. This is incorrect. Consumers are legally obligated to remit sales taxes on online purchases to their states. Now, nobody, including myself, does this...

... but one solution would be for the Feds to set up a system to collect taxes and make all online retailers participate. Face it, it's our legal obligation. Buy less junk if you have to. Likely people will still make purchases on Amazon, and they'll still be able to get a better deal than locally.
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