Checking In On the Amazon Tax Battle
States have been battling Amazon and other online retailers over sales tax collection for years. Have they finally made progress?
For states and localities, online sales by Web-only retailers are a drain on revenue. A prominent University of Tennessee study figures that the e-commerce loss to state and local coffers is, at a minimum, $11.4 billion for 2012. The National Conference of State Legislatures recently pegged the cost at $23 billion in new revenue each year. But perhaps more wrenching is a Washington Post story on e-sales taxes that found that if e-sales could be taxed, Virginia would have been nearly $423 million to the good this year, while Maryland would have seen $376 million and the District of Columbia $72 million in revenues.
As anyone who has followed the issue knows, the inability to tax sales from online-only retailers harks back to a 1992 Supreme Court ruling that held it was an undue burden to ask retailers who had no physical presence in a state to collect state and local taxes in that jurisdiction. At the time, the ruling applied mostly to mail-order catalogue sales, but then Internet sales became part of the nexus rule.
It's not just an issue for state and localities. Target, Walmart and other retailers with stick-and-brick stores have to collect the state and local sales tax whether their customers buy online or in person. That's a competitive disadvantage, so it's no wonder they are joining states in the fight to make online retailers pay up.
Last year, this column reported on actions several states like New York were taking. Since then, other strategies have surfaced. To catch up on what has happened in the past year -- and what the year ahead looks like -- I talked to Joe Rinzel, vice president for state government affairs at the Retail Industry Leaders Association. An edited transcript of our coversation follows.
What has been going on this past year?
A lot of states are expanding their definition of physical nexus in their laws to include supply chain facilities, such as distribution centers or warehouses. Now Amazon, in particular, wants to increase their physical presence in terms of supply chains to enable quicker, same day delivery. States have been working out deals with Amazon where the company gets periods of time with no sales tax collection in exchange for opening a facility and bringing jobs to the state.
I put together a little chart on which states have deals with Amazon to bring in a facility and when Amazon is supposed to start collecting the sales tax in the state.
- California: Sept. 15, 2012
- Indiana: Jan. 1, 2014
- Tennessee: Jan. 1, 2014
- Virginia: Sept. 1, 2013
- Nevada: Jan. 1, 2014
- Texas: July 1, 2012
- New Jersey: July 1, 2013
- Pennsylvania: Sept. 1, 2012*
I have an asterisk by Pennsylvania because it was an administrative ruling. Amazon facilities already existed there; the Corbett administration clarified that distribution centers or warehouses do in fact constitute physical nexus and that the state expected those companies with a physical presence to begin collecting the tax on Sept. 1, 2012.
What about other online-only retailers? How do these laws affect collections from them?
The governors' understand this is one piece of the pie -- Amazon is the largest piece. The only way to get to 100 percent of collection of sales taxes and a level playing field for retailers is for the federal government to act.
Is there enough impetus for Congress to act?
We've seen unprecedented activity in bipartisan legislation introduced in the U.S. House and Senate. In the Senate, the Marketplace Fairness Act has notable sponsors in senators Lamar Alexander and Richard Durbin. There was a House Judiciary committee hearing last week on legislation specific to the Marketplace Equity Act introduced by Rep. Steve Womack and Rep. Jackie Speier. We're more hopeful than in the past. This is the first time in many cycles that there's been bipartisan introduction of bills. States are pushing for some sort of solution. Retailers are pushing. Amazon is supportive. There's a lot of momentum on the issue.
What is in the bill at this point that states should know about?
The 24 states that have streamlined their sales taxes have a route to collection under this legislation, and states that have not joined that project have a route as well. Simplification is the key. Every state must simplify to receive collection authority. For instance, states will need to give small business exemptions so that the smaller retailer is not obligated to collect and remit. The bill also calls on states to do centralized collection for online retailers. That is, set up one point of collection as opposed to the retailer having to submit to the county and the local level. Rather, they would just have to submit to one place and it would be up to the state to disperse the money. The intent of the bill is for the state to provide certified service providers software that lets the retailer know what's taxable and when.
Keep in mind, right now the sales tax is complicated. If simplification comes, everyone benefits.
Have governors' given the bill bipartisan support?
There's been support from governors across the political spectrum -- from Paul LePage in Maine to Jerry Brown in California. More than half of the Republican governors have come out publicly in favor of the legislation. This is not a new tax. It's about states having the authority to collect taxes that are due.