Amazon Fights Back Against NY Online Sales Tax

The New York Times is reporting on Amazon's lawsuit contesting the recently enacted New York state law which requires online retail outlets to collect sales tax on items sold to the state's residents. Amazon disagrees that it should be required to collect such tax without a physical presence in the state. We discussed the 'Amazon Tax' last month. Quoting: "The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer. Amazon has hundreds of thousands of affiliates--from big publishers to tiny blogs--that feature links to its products. It says thousands of those have given an address in New York State, although it does not verify the addresses. The state law says that if even one of those affiliates is in New York, Amazon must collect sales tax on everything sold in the state, even if it is not sold through the affiliate."

I wonder if...

[Anonymous Coward]

I wonder if Amazon could just refuse to sell items to people in NY state, and additionally drop all affiliates there (or at least stop accepting new affiliates). I'm sure all those affiliates (bit and small) would make some racket to their state legislators if they were cut off.

Of course they'd never go that route, I think. It sure would be fun to watch, though. :P

Re:I wonder if...

[SpiritualRemains]

I believe the easiest option for Amazon would be to simply drop all affiliates in New York. Refusing to sell to New York is financial suicide for them, but dropping all affiliates wouldn't cause too much grief from the public.

Re:A few thoughts...

[kamochan]

And this would scale to global customers, how exactly? Chinese or Swedish or maybe Australian buyers paying average-US-state sales tax on their purchases?

If something like this (the NY solution, or parent's) gets implemented for real, then online vendors will simply move out of the US to the land of the (tax-)free.

It's internet commerce. Any solution needs to be globally viable, or it will be doomed to silliness. This is also why it's going to be darn difficult to solve.

NY Could Sue For Buyer's Addresses

[stupidflanders]

It was already a law that residents had to pay sales tax on out of state items. But with no real way for the state to enforce it, most taxpayers are not going to bother.

Also, per resident this is a very small amount, which makes it almost silly to bother reporting on your state tax return. According to the first article, "The provision is meant to contribute about $50 million to the $122 billion budget [nytimes.com]" In 2006, the population of NY state was 19,306,183 [census.gov]. By those numbers, each resident would be paying an average of $2.59. In NY, sales tax is different IN EACH COUNTY! [earthodyssey.com] (Statewide it varies between 7% and 9%). This means that a $24.95 book would have $1.74-$2.24 tax owed to NY state. Who would bother? Granted, some people order hundreds of dollars worth or merchandise off of Amazon, so it would be higher for some people, that's not the point. Obviously, not many people pay their share, which is why the greedy politicians passed this law.

One HIGHLY invasive option is for the state of New York to sue Amazon and force them to hand over the addresses of NY residents. Heck, they could probably even sue for the entire purchase history per year, per account. I am not sure that New York could enforce it even then, though. What are they going to do, knock on each Amazon shoppers door and threaten to take them to take them to jail if they don't pay two bucks?

(I am not saying that this is a GOOD option, but since it was already a law, I am surprised that the state of NY did not try to get their grubby mitts on taxpayers money this way. Bring on the flames...)

Hopefully Amazon will win this.

Better than the alternative

[Count_Froggy]

This is simply a jurisdiction (State, County or City) trying to make tax collection easier for themselves. I don't know of any jurisdiction with a Sales Tax that doesn't already have a corresponding Use tax, which is intended to tax anything that was purchased from out of Jurisdiction. Unfortunately, collecting that Use tax is difficult with the number of possible filers and the jurisdiction's desire to verify that the filers aren't under-reporting. Generally, they have dealt with this by going after businesses and big-ticket items like cars, boats, and airplanes. But, governments are getting greedier. If they can't get the online retailers to collect the taxes for them, the next option for them is to go after the banking industry to collect enforcement data. They will simply require banks to collect information on the items purchased so they can collect the Use tax based on that information. In pre-computer days, that would have been impossible given the volume of data, but today, it is clearly possible. Especially if you realize that any internet purchasing goes through some kind of bank or payment service (Paypal). I don't want that much 'Big Brother' looking over my shoulder; I'd rather pay sales tax via the retailer who simply can report it by category, not item.

Re:A few thoughts...

[maxume]

Shipping through customs is going to be a lot worse than most sales taxes.

Misleading commentary

[Eevee]

The new law is based on a novel definition of what constitutes a presence in the state: It includes any Web site based in the state that earns a referral fee for sending customers to an online retailer.

It's not novel. In Zippo v. Zippo 952 F. Supp. 1119, the Court found Pennsylvania had jurisdiction over Zippo.com, a California-based company, over the fact it engaged in electronic commerce with 3,000 individuals and 7 ISPs located in Pennsylvania. In this case, Amazon is engaged in electronic commerce with numerous companies, via the referral fee, based out of New York--thus New York should have the same jurisdiction rights as Pennsylvania did.

Well what about a deliver tax then?

[140Mandak262Jamuna]

NY could easily pass delivery tax and make UPS and Fed-ed collect the tax for them.

However much I dislike the taxes, I hate discrimination and government loading the dice and making the playing field slanted. The brick-and-mortar companies in New York are obligated to collect sales tax for NY. That includes you corner diner and the mom-and-pop store selling used books. There was a time when compiling 50 state sales tax codes or even 25000 local county tax codes and making businesses outside complying with these code was technologically impossible. But now that excuse is not valid anymore.

If Amazon does not have to collect the tax, none of the local businesses should have to collect the tax. If the local businesses must, then Amazon must too. It is a question of Government not playing favorites and creating walled gardens. It is not really a question of whether or not the the sales tax is fair or unfair. But I am not sure most people will see the distinction.

Re:I wonder if...

[aplusjimages]

Maybe you should start demanding that your tax money be used to benefit you. Got a pothole in your neighborhood, then call NY and require they fix it with the tax money you are paying them.

Re:A few thoughts...

[rjstanford]

The state isn't taxing Amazon, though. They're requiring Amazon to collect taxes owed by Amazon's customers on behalf of the state. This is how all point-of-sale-collected sales tax works: its not owed by the retailer, but by the consumer, and collected by the retailer both as a convenience (no reporting/payment burden remains) and because consumers have proven remarkably unlikely to actually report and pay the tax themselves. If it wasn't for this, the only actual way to enforce a sales tax would be to require the consumer to identify themselves to the retailer and have their purchase history reported to the state - and we really don't want to go there, do we?

Of course, you can argue the fairness of a sales tax as well (its possibly one of the most regressive forms of taxation ever introduced), but it is the law in most of the US.

Re:I wonder if...

[Firethorn]

And PLEASE stop comparing American states to countries: Canada != New York State. The United States are a country, like Canada, France or the Federated States of Micronesia.

While we're more tightly knit than say, the EU, we're also a lot looser than most countries.

So it's not 100% wrong. Besides, the US constitution could be considered the original NAFTA. Tariffs between states are strictly forbidden, and indeed, this could be considered a tariff.

If I WAS amazon, I'd take it to court in that fashion. If I felt it necessary, I'd take the bite and stop selling in NY. Encourage other online retailors to do the same. The people would complain if that happened.

Re:I wonder if...

[electrictroy]

>>>"The sale takes place wherever the buyer lives."

Close but not wholly accurate. If I buy something in Maryland, where I live, I pay SALES tax. If I drive across the border, buy in PA or DE, and then drive back, I have to pay a USE tax. Two different taxes, depending upon if the item was purchased inside or ourside of Maryland jurisdiction.

Amazon has to charge Sales tax for sales within its own state (where it has physical presence). It does not have to charge Use tax for out-of-state sales; that's the responsibility of the foreign citizen.

What New York needs to do is go after the *New York Seller*, and demand payment from those people, not ask amazon to do it. Amazon is not the police; it's not amazon's job to enforce laws upon New York Salespeople. (That is the NY government's job.)

Loophole

[Jaime2]

Just buy everything with PayPal and have it shipped to yourself as a gift from a fictitious address outside of New York. If they solve this, then any non-New York resident could tax-bomb any New York resident by gift shipping all of their stuff to their own houses using a New York address as the giver.