Amazon to Texas: Adios!

[Webwork]

Amazon shutting down Texas distribution center rather than collecting and remitting sales tax: [dallasnews.com ]

So, what will it take to end the game of "catch me if you can"?

[LifeinAsia]

Hard to comment without knowing the exact structure of the distribution center (Amazon says it's a subsidiary).

So the main question is whether the state is trying to ignore its own tax loop hole and go after Amazon without first closing the loop hole, or is Amazon not actually in compliance with the loop hole?

If Amazon's setup does NOT fit into the loop hole, then yes, they owe the taxes. Their mistake for not setting things up correctly.

If Amazon's setup DOES comply with the law, then tough cookies for the state. If they (the state) don't like the loop hole, then fix the loop hole- don't try to illegally go after legit businesses because of their own legal mistakes.

[IanTurner]

Hmm - a Global Currency and Global Sales Tax

Otherwise people will buy via eBay from Hong Kong or by whichever route they can get their product cheapest.

[Robert Charlton]

Just to clarify one point that wasn't clear to me from the original post. This isn't about collecting and remitting sales tax as we move ahead. This is about tax previously not collected....

My emphasis...

Texas wants $269 million from Seattle-based Amazon in past-due sales tax. It sent the bill to the company last October.

In California, I noticed that, on my first purchase of this year, Amazon did in fact add an estimated sales tax amount to my invoice and include it on my credit card charge. This is something they weren't doing in past years.

[travelin cat]

Robert, are you saying that Amazon just listed what the estimated tax would be on your statement, or did it actually show up as a charge on your statement?

[Rugles]

estimated sales tax amount

Why was it "estimated"?

[LifeinAsia]

Why was it "estimated"?

Because each county (and even some cities, and even certain parts of some cities) can add location-specific rates [boe.ca.gov] to the state's default sales tax rate, adding as much as 1% to the state's default rate. And these can change all the time, depending on the whims of voters and/or elected officials. Most likely, Amazon just uses the basic state sales tax rate.

Multiply this mess by almost 50 states and you'll see one of the main reason why Internet retailers try so hard to avoid becoming sales tax collectors.

[Edited spelling.]

[edited by: LifeinAsia at 10:11 pm (utc) on Feb 11, 2011]

[lorax]

Brilliant. We're going to see a lot more of this. Texas has enough of an economy to absorb the loss but smaller states won't be so fortunate will either cave on the demands to pay taxes or pressure the US Government to enact some legislation. This is going to get REALLY messy.

[Robert Charlton]

Amazon's wording about this is very confusing, and, until I received my credit card statement, it wasn't completely clear to me whether the "estimated" tax was going to be charged on my credit card. It was charged, and I was billed for the "grand total", as below.

Here is the precise wording on Amazon's invoice (amounts made up but arithmetic is more or less right):

Total Before Tax: $34.56
Estimated Tax To Be Collected: $3.35
Grand Total: $37.91

Amazon doesn't indicate anywhere who is going to be paying the State of California, but I assume it's got to be Amazon, since they have the money.

As a consumer/taxpayer, I don't know how my tax return next year will be affected by what the State and Amazon are doing... assuming there's some kind of coordination on this.

It may be that the word "estimated" is used because sales tax in California varies according to county and city taxes. It's a nightmare for anyone involved. I think for use tax there's a high figure that covers everywhere in the state. Maybe Amazon is using the word "estimated" because they can't figure it out either. ;)

I haven't done enough online ordering of physical goods from online vendors this year to see who else follows Amazon's pattern.

For more background on California and use tax, see travelin_cat's Sept 2009 alert on anticipated use tax enforcement....

New California tax requirement
http://www.webmasterworld.com/webmaster_business_issues/3983547.htm [webmasterworld.com]

[Rugles]

Because each county (and even some cities, and even certain parts of some cities) can add location-specific rates

I thought this was all about State taxes. What do these local taxes have to do with anything.

What a nightmare, yet another example of why the US should adopt a national sales tax and divide it up between all the States by population. Who am I kidding ... it aint going to happen.

[LifeinAsia]

What do these local taxes have to do with anything.

Those are additional amounts added to the state sales tax in those locales.

For example, I live in Ventura County, so I pay 8.25% sales tax. Yet if I travel 2 miles and buy the exact same item in Los Angeles County, I'd have to pay a whopping 9.75% sales tax. Needless to say, L.A. County businesses (and as a result, the county itself) have lost out on a LOT of revenue from me since they imposed the additional amount.

[ergophobe]

The law in California is that I must charge
- state base rate in tax zones where I have no presence
- the local rate in tax zones where I do.

So let's say I have three locations - HQ, design and warehouse/fulfillment in three different tax zones (this is not a random example - I just set up a store with this very set up).

If HQ takes in an order which is fulfilled by the warehouse and shipped to the same town as design, I have to charge whatever tax is required in the locale where the design facility is.

If the design facility is in a place that has a county rate, a local rate and a special rate (e.g. b/c of a transportation district), I might have to charge one rate if the item lands in the same city as the repair facility and another rate if it lands in another town in that county. Fortunately, in the case at hand, this is not true.

So if I have just three locations, I will need to track at least 4 tax zones (which I do) and possibly 6-7. If I'm like amazon and have affiliates in almost every tax zone, and they are considered "a presence" I might need to track over 1000 tax zones just in California to be in compliance with the law.

[incrediBILL]

Before anyone gets all excited that Texas is a big money grubber, Texas is one of the few states that has no personal or corporate income tax [en.wikipedia.org], which is probably why Amazon located their offices there in the first place.

I think the big point here isn't that Amazon doesn't want to pay sales tax, they don't want to pay ANY tax!

Now let's get down to the reality, corporations don't really pay taxes, their customers pay those taxes, doesn't matter what kind of tax, sales, income or otherwise, you the customer always pay that tax.

[IanTurner]

LifeinAsia - I'll take a 9.75% Tax anyday - we have a national rate at 20% at the moment.

Corporations have the aim of reducing their taxes, a lot have set up in Ireland to 'avoid' UK tax rates. Amazon has its EU centre in Luxembourg for tax reasons. Play.com operates out of the Channel Islands where they don't have to charge sales tax.

If you are a director of a corporation you have an obligation to get the best return for your shareholders and as such choosing your business location to reduce your tax liability is part of your obligation.

[MLHmptn]

The ridiculous part is why do we have to employ people and pay their hourly rates to collect taxes for any state we have no nexus in? These states that are wanting their tax money should bite the bullet and join the streamlined sales tax initiative or better yet they just need to have a federal "internet tax" and then let the federal government divy it all up on their dollar, not ours.

I presently collect California tax and I have absolutely no building or anything in California. My kids don't go to school there, I don't use their roads, I enjoy nothing in California to collect their tax and I employ somebody to collect their taxes on my dollar. Worst part about it is it takes them 2 days to do the California taxes simply because every city has a different tax rate. 16 hours x 15.00/hour...Hmm...$240.00 and the resources it takes from my own business for something I gain nothing from. It would sure be nice to get free gas from the state of California (since they should owe me for my employee's hourly rate) if I ever visited there!

[thiefware]

I "second" the National Sales tax innitiative. Collecting local and state sales tax would be ridiculous for businesses to do--way too much tracking of paperwork for very small businesses with little resources to work with. Could you imagine filing taxes for hundreds of localities and all 50 states when you are a micro business with 2-3 employees? You'd spend all your time tracking sales and filling out tax reports. You'd go under.

[incrediBILL]

Getting the right tax rates for the US isn't complicated whatsoever. There are numerous services out there for US tax rates like Zip2Tax and for a mere $20+ per month you can get accurate rates per zipcode including whether shipping is taxable or not for that state. All you need then is a sales tax report that breaks down sales tax by jurisdiction to make your reporting quick and painless.

If you don't want to fill out the tax reporting forms yourself, hire an accountant to do that kind of stuff.

[skibum]

Lets face it. Amazon is one big freeloading company as are other "Internet" companies compared to companies that have physical retail locations. It may be legal but they are obviously taking advantage of the situation. The physical stores that are "dumb" enough to have physical locations, physical inventory and offer service serve as showrooms for Amazon. On top of that, most consumers don't pay sales tax on the stuff purchased from Amazon. Buying all this stuff online sucks retail cash and jobs out of local economies in addition to the tax revenue that would normally be collected in the local economies.

At some point before all the local businesses go out of business the field will need to be leveled or Amazon will have to start opening physical locations so people can actually see, touch and feel some of the things sold by Amazon before they buy them.

Everyone has had a free lunch for quite a while here but as e-com sales continue to take up an ever larger share of retail sales, that free lunch is no longer going to be free for all that much longer. The amount of money that goes to taxes in this country seems to be getting just plain staggering. By the time you factor in national, state and local income tax, FICA, Medicare, sales, hotel occupancy, gas and everything else it has got to be close to 60% in some areas.

[incrediBILL]

Buying all this stuff online sucks retail cash and jobs out of local economies in addition to the tax revenue that would normally be collected in the local economies.

Maybe the local economies should get a better business model and charge more reasonable prices and they wouldn't be as easily hurt by Amazon and better yet, Walmart. If the price is $50 online and $60 local, I may still buy it local. However, when it's $100 locally, Amazon wins, tax or not, I'm buying it online.

FWIW, Walmart is way more disruptive to local economies than Amazon. Walmart kills the local grocer, local haberdasheries and even the local papers that exist on local ads, which Walmart refuses to print. Then people previously making a decent wage at the now defunct local stores get to apply at Walmart for a salary cut.

[dpd1]

Interesting documentary done on Walmart some years back. Think I caught it on the doc channel or something. They basically followed the story as they tried to come into a small town and what happened. It was beyond comical. You'd have these little old ladies that nobody in the town had ever seen before, show up to the meetings and claim they were for the store coming, because they had no way to get hearing aids, or some nonsense. It was so obvious they were wringers for Walmart. They will stoop to any level.

There's probably somewhere to watch it online.

[LifeinAsia]

Amazon is one big freeloading company as are other "Internet" companies compared to companies that have physical retail locations.

I guess that makes most of us here freeloaders as well? :)

Buying all this stuff online sucks retail cash and jobs out of local economies in addition to the tax revenue that would normally be collected in the local economies.

In most locales, the buyers are still responsible for paying a use tax on their online purchases.

Realistically, there are very few reasons why local retailers can not continue to compete with Amazon/Walmart. There are certainly many who continue to do so. Yes, many go out of business because they can't compete. But that's life in a capitalist world. You learn to compete against the competition or you die.

In my sector, we've been competing with Travelocity, Expedia, Orbitz, Hotels.com, and lots of other big (and little) guys. And we've been doing it for almost 11 years now.

[robdwoods]

I have to agree with @skibum. Online companies have had an advantage in not collecting tax for a long time but it's naive to expect that governments are going to continue to stand by and allow that tax revenue to slip through their fingers. The laws are confused and fragmented at the moment but don't expect govts. to allow it to continue. As slow as they are, they will catch up.

[LifeinAsia]

But you can also say that local retailers have an advantage over Internet merchants because the local guys don't have to pay for shipping.

They also have an advantage in that they can easily target the people who can't/don't use the Internet for shopping.

[incrediBILL]

local guys don't have to pay for shipping

How do you figure?

The local shop has already paid to have it delivered to their store so the shipping costs they paid is already included in the price of the product on the shelf.

If it's a really big product, furniture, appliances, you pay them yet again to deliver it to your house.

Online resellers that drop ship directly from the distributor or manufacturer often have a huge price advantage with or without tax. More importantly you can get exactly what you want, not just what's in stock.

[wheel]

local guys don't have to pay for shipping

I'm picturing the movie Dinner for Schmucks.

Well, I had to get it shipped here from somewhere else. And I'm handling it.

[dpd1]

Strictly speaking cost, I don't think there's any way retailers can compete with online biz. Anybody who has run a store knows what that costs. And for the large companies, just the lawsuits from customers alone is millions a year. Somebody gets attacked in your parking lot, slips on your floor... Guess who's fault it is. And then insurance, property cost, maintenance, upkeep, security, way more employees. It all costs a fortune. vs a couple warehouses somewhere? There's no comparison.

[dickbaker]

A B&M retailer doesn't have to compete with billions of other retailers to have his customers know he's there. We have to spend thousands of hours or thousands of dollars trying to get or maintain rankings.

A B&M retailer has an easier time dealing with credit card fraud. He can ask the customer for a photo ID and be reasonably certain that he's dealing with the real card holder. We do everything we can to verify, then cross our fingers.

If the B&M retailer gets stung by a stolen card, he can call the police and they'll likely do something. When I've called the police they've told me there's nothing they can do. They don't want to get involved.

In the end, it's a horse apiece. The deal with the states is that they can't afford to go chasing after every taxpayer who isn't declaring mail-order purchases. Instead, the state governments want the online retailers to do the policing, and eat the cost of the policing.

[Bewenched]

Before anyone gets all excited that Texas is a big money grubber, Texas is one of the few states that has no personal or corporate income tax [en.wikipedia.org], which is probably why Amazon located their offices there in the first place.

We do have Corporate income tax/ Franchise tax, we also have to pay corporate property tax as well as a "hidden" tax on companies: Business engaged retail 1% and wholesale businesses pay tax at a .5% rate. House Bill 3 may be found at the Texas Legislature’s website at [capitol.state.tx.us...]