Amazon Endorses Online Sales Tax Bill (Again)

The online retailer -- known for hardball tactics when it comes to sales tax -- appears to be shifting its approach.
by , | November 10, 2011

Lawmakers have an unusual ally in their campaign to to tax online sales: Amazon, the world's largest online retailer.

For years, Amazon has enjoyed a price advantage over its brick-and-mortar competitors, in part because most of its customers aren't charged sales tax when purchasing online goods. The company has waged a series of high-profile battles with states that have tried to compel the company to levy those taxes.

Those hardball tactics of Amazon have been announced its support for legislation introduced this week by Sens. Lamar Alexander (R-Tenn.), Dick Durbin (D-Ill.) and Mike Enzi (R-Wyo.) that would establish a system for states and localities to collect online sales tax. The bill has been referred to the Senate Finance Committee.

Paul Misener, Amazon's vice president for global public policy, said in the statement that the company will work to get the legislation passed. He said that Amazon customers get "the best prices, with or without sales tax."

The legislation would allow states to force out-of-state online and catalogue retailers to collect sales tax from their customers and then remit that money back to states and localities -- just as physical stores have done for years. Companies like Amazon would also have to facilitate collection of the taxes on behalf of their third party sellers.

The legislation, called the Marketplace Fairness Act, is similar to a bill Durbin introduced over the summer known as the Main Street Fairness Act. Amazon also backed that legislation.

Durbin and his co-sponsors argue that Amazon and other online retailers have an unfair advantage over their competitors with physical stores, since online customers typically aren't assessed sales taxes.

The bill is being endorsed by all the major organizations that advocate on behalf of state and local governments, saying that these governments are missing out on billions of dollars in revenue at a time when they desperately need it due to the loophole.

The National Conference of State Legislatures, one of the group's supporting the legislation, says the tax loophole costs states $23.3 billion this year in missed revenue. A University of Tennessee puts the figure a bit lower, predicting online sales tax losses to states of $11.4 billion next year.

Backers of the legislators have frequently made the point that their plan would "not require a single penny in additional taxes to be paid that are not already owed." That's technically true: Customers who purchase products from online retailers like Amazon are supposed to calculate what they owe and pay it to their state and local governments, since the retailers don't collect sales tax on their behalf. Forcing the retailers to collect taxes on their behalf would technically just make that process easier.

In reality, most customers don't handle their own sales tax payments, so their purchases are tax-free, at least in their eyes. As a result, millions of consumers could soon see the the costs of goods sold online increase if the legislation in successful. States could keep the status quo and decline to force online sales tax collections if they choose, the legislators note.

Amazon's endorsement appears to be a retreat from its earlier strategies (see Who's Winning the Amazon Tax Battles? in this month's issue). Most notably, the company had a high-profile fight with California recently when the state passed legislation that would force online sales tax collection. The company spent $5 million collecting signatures on a petition that would force a referendum to overturn the legislation, but eventually, the company came to an agreement that it would start collecting taxes after a one-year grace period.

Unsurprisingly, many online retailers oppose the proposal. Officials from the Electronic Retailing Association say that  that the proposal will hurt the online retailers' business by essentially increasing their costs during a time of economic struggle.

Officials with online auctioneer eBay also oppose the deal, arguing that it is most damaging to small businesses that sell products online. "It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity," said Tod Cohen, the company's vice president for government relations in a statement e-mailed to Governing.

Some have speculated that Amazon officials realize that the measure will eventually be implemented -- with or without Amazon's support -- and by coming to the table, the company may have positioned itself to have greater influence in shaping the law.

The legislation works by building on the work of the Streamlined Sales Tax Governing Board, which has created a set of standardized sales tax policies for states in order to create a more uniform system for online retailers that would be charged with collecting those taxes.

Twenty-four states have adopted those measures developed by the organization, but an act of Congress is required for them to actually take effect. If the Marketplace Fairness Act passes, those 24 states could start compelling online retailers to collect sales tax on their behalf. Additionally, states that aren't part of the agreement could also compel online sales tax collection if they adopt a more limited subset of those standards. This provision was absent from this summer's Main Street Fairness Act.

Online and catalogue sellers with less than $500,000 in out-of-state sales annually would be exempt from the legislation. That's likely a higher than ceiling that what would have been set under the Main Street Fairness Act, which would have allowed the Streamlined Sales Tax Governing Board to set the ceiling. The board was expected to choose a $100,000 cap.

Perhaps most importantly, the Marketplace Fairness Act has a bipartisan group of cosponsors, as opposed to the Main Street Fairness Act, which only had Democratic cosponsors.

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