Sunday, July 29, 2012

Amazon is backing a bill that would allow states to collect or remit sales tax on items purchased from a small number of large, out-of-state online retailers including Amazon and Overstock.

You already pay sales tax when you shop in brick-and-mortar stores, and now you might pay state and local taxes, too, when you shop online.

“It’s going to feel like a new tax,” Jonathan Johnson, president of Overstock.com told Mashable. “It’s going to feel like businesses are reaching into the pockets of consumers.”

The Marketplace Fairness Act, as it’s called, is backed by Senators Mike Enzi, Lamar Alexander, and Dick Durbin. Amazon is a proponent of the bill, although the company initially opposed the legislation. The constitution allows congress to regulate interstate commerce. This bill would put power into the hands of the states to impose a tax on online purchases or chose not to. Online sellers with less than $500,000 in remote sales will be exempt from collecting these taxes.

Proponents of the legislation say it will level the playing field for brick-and-mortar businesses, which are at a disadvantage because online shoppers can forgo sales tax on a small number of retail websites. Opponents say online retailers cannot enjoy the benefits of collecting state and local taxes when they’re located out of state, in addition to being accountable for adhering to more than 9,000 tax codes across the U.S.

Sales tax is already required on all online purchases in 45 states, according to the official website of the Marketplace Fairness Act. Macy’s, for example, charges sales tax when you buy online because the store is located in 45 states. In the past, Amazon and a small fraction of other online retailers have been able to avoid collecting taxes by having such a small physical presence in the country. But now, Amazon is growing.

Now that Amazon has established a larger presence in the country with a growing number of distribution centers it makes sense for the company to publicly express its opinion concerning this legislation. The Wall Street Journal reported the reason for Amazon’s change of heart is due to numerous deals it struck with states where the company plans to open distribution centers, with the states letting Amazon forgo taxes for a period of time in exchange for creating jobs within the states.

When Paul Misener, vice president of Amazon global public policy, testified in November at a meeting of the House Judiciary Committee, he said states should have the freedom to make their own revenue policy choices. This would rewrite a decision from a 1987 case Quill v. North Dakota in which the U.S. Supreme Court decided “requiring out-of-state sellers to collect tax would impose an unconstitutional burden on interstate commerce.”

“Amazon believes the sales tax issue needs to be resolved at the federal level, and we’re actively working with the states, retailers and Congress to get federal legislation passed now,” Amazon spokesperson Scott Stanzel tells our team. “As analysts have noted, we offer customers the best prices with or without sales tax. We collect sales tax or its equivalent in more than half of the areas where we do business, and we are pleased to say we are thriving in those geographies because Amazon offers low prices, vast selection and fast delivery.”

Johnson said Overstock opposes the legislation but is open to a federal solution. Perhaps something that would provide Overstock software to collect state taxes, from which, Johnson points out, Overstock and its employees will likely not benefit from since its offices are located in Utah. Johnson added that he would like to see some sort of protection from lawsuits in case of a glitch in the software.

Johnson and CEO Patrick Byrne wrote an op-ed for The Washington Post about how charging sales tax for online purchases based on where the purchasers lives is as silly as a Walmart clerks asking the customer where they will be using an item they’re purchasing.

Consumers can be audited for not paying state sales taxes on online purchases (although that’s highly unlikely) but states are often not able to enforce this. Giving states the option to request that online retailers, such as Amazon and Overstock, add state and local taxes onto purchases being shipped to customers around the country is an efficient way, proponents say, for states to collect those required, but often unpaid, taxes.

“It resolves an inconsistancy in the way retail sales are treated,” French said. “Some online retailers a very small number  enjoy a benefit that is not enjoyed by their brick-and-mortar competitors, while delivering the same products.”

In fact, instate tax collection has been an issue since the 1930s with widely-distributed catalogs. A series of court cases over the years have attempted to solve the problem of interstate tax collection, with the most recent case being Quill Corp. v. North Dakota in 1992. Proponents of the new legislation say the 20-year-old Quill ruling is outdated considering how much consumer habits have changed with the emergence of online shopping.

French said Amazon initially opposed this legislation, but as support for the bill grew stronger and it appeared it was just a matter of time before it would be passed, Amazon jumped on board.

Retailers including eBay and Overstock continue to oppose the legislation.

Brian Bieron, senior director of federal government relations at eBay Inc., made the following statement in response to the House Judiciary Committee hearing the Marketplace Equity Act of 2011 a very similar piece of legislation:

“Small business retailers using the Internet are entrepreneurs who are creating jobs, serving consumers and creating competition for established retail giants. They should be protected from any new Internet Sales Tax regime so that they continue to advance and grow, and regrettably the Speier-Womack Internet Sales Tax legislation falls far short of an acceptable small business retailer exemption.”