Who Should Collect The Amazon Tax?

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20070710taxation1.JPGA fight is brewing between Amazon and the State of New York over who is responsible for collecting state sales taxes on online purchases. Up until now, online retailers have only had to collect state sales taxes in states where they have physical locations—the same way that catalog retailers are treated. Otherwise, it is up to consumers to declare goods bought over the Internet as out-of-state purchases. (Right. I’ll go find those receipts).

Since most people don’t bother to declare online purchases on their tax forms, the State of New York recently passed some legislation (tucked into last month’s budget bill) known as the “Amazon Tax”. This new law conveniently redefines any Amazon affiliate as part of the retailer, and since there are plenty of Amazon affiliates in New York State, puts the burden of collecting the state sales tax onto Amazon. Clearly, this ridiculously stretches the boundaries of what constitutes Amazon and what does not. So Amazon is suing New York State to overturn the law.

Amazon argues that the law is “overly broad and vague” in its attempt to place the company physically inside the state, and also complains that the law unfairly targets Amazon as opposed to online retailers in general. (Although it does apply to all online sales, not just Amazon’s).

The law, as written, is just a bad law. And it would set a dangerous precedent. Not because New York State shouldn’t try to collect the $50 million in estimated uncollected sales taxes owed to it. But because the law is tortuous in the way it attempts to do that.

A marketing affiliate is not part of Amazon. If I put some Amazon book recommendations on the side of TechCrunch , set up an affiliate account, and readers click through and buy those books, that does not make TechCrunch part of Amazon. It is a marketing arrangement. Just like someone who sets up an AdSense account does not work for Google.

This still leaves the question of who should be collecting state sales taxes on online purchases. On that matter, I’m on New York’s side that it should be Amazon. It knows what state its customers reside in since it has their credit card information and is shipping goods to them. How hard would it be for Amazon to add a sales tax calculator to its checkout cart that calculates a different sales tax depending on the state of the purchaser? The answer is that it wouldn’t be hard at all, but that Amazon doesn’t want to do it because every additional surcharge at checkout results in more abandoned carts due to last-minute sticker shock.

Unfortunately, New York State has no jurisdiction over Amazon, which is headquartered in Washington. So the way to fix this would be a federal law that applies to all retailers. But Congress only cares about federal taxes and is not going to pass a law that will be unpopular with consumers to put more money into state coffers (setting aside the question of whether it can pass a law directing how state taxes should be collected in the first place). Without a federal law, though, more states will pass more bad laws on their own. So, what’s the answer?

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