Taxing Internet Purchases

[guido911]

I read today on Drudge that California will start taxing internet purchases and I thought a discussion might be a good idea on that. Here's Amazon's reported reaction:

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites. The letter says, in part:

(The bill) specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by California-based marketing affiliates like you - even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

The new law won't affect customers, Amazon said, but added that the immediate termination of the affiliate program also applies to endless.com, myhabit.com and smallparts.com

http://www.ocregister.com/articles/amazon-306409-affiliate-california.html

[Conan71]

That's what I thought.

No one seems too interested though.

http://www.tulsanow.org/forum/index.php?topic=17794.0

[Hoss]

That's what I thought.

No one seems too interested though.

http://www.tulsanow.org/forum/index.php?topic=17794.0

I think it's a death knell financially for any state that does it, given that Amazon has such a big presence with vendors all around the country.

One thing I believe I brought up several months ago was the "900 lb gorilla in the room" campaign Oklahoma started right before filing time about the 'use tax' and talking about how anything bought via the internet had to be claimed.  I don't believe I've ever heard of anyone doing as such.

States need to be more creative about closing up their budgets.  Doing this is counterproductive.

[guido911]

That's what I thought.

No one seems too interested though.

http://www.tulsanow.org/forum/index.php?topic=17794.0

I'm sorry I double posted this. I didn't even bother looking around. Well, I guess you and I can discuss it.

Now, I do recall at least one poster that thought not taxing internet purchases was hurting the small retail business owner. That's kinda what I was looking to hear about. Personally, I buy loads of stuff from Amazon.

edited.

[Conan71]

If no one objects, I'll put it over here.  Might have not gotten much play since I did start the thread title with "Governor Moonbeam..."

Amazon is terminating thousands of agreements with their California affiliates to avoid having to collect and remit sales tax to the state of California.  There's no doubt online retailing has been detrimental to sales tax collections for every state which has a sales tax, but here's the unintended consequences of potentially running upwards of 25,000 small businesses which may employ one person or a hundred out of business.  The short-sightedness of such laws fails to recognize that on-line selling brings millions and billions of dollars into a state from other states and from around the world.  Profits are turned into payroll and a portion of that payroll is spent in the local economy.

Yet one more reason to examine a national consumption tax much like what's laid out in the "Fair Tax" plan in order to ensure collection and distribution of sales taxes.

Personally, I see large tax grabs like this as a lazy approach to dealing with state and local solvency issues.  In doing something like this, they simply worry about pissing off one company.  If they dealt with the real problem, Asian and Hispanic voting blocs would retaliate at the polls.  California needs to quit being a dumping ground for the rest of the world's human refuse for starters.  Their education and prison systems are broke because of incredibly liberal views on immigration for far too many years.

It's going to be interesting to see how this shakes out.

"Will California's law forcing out-of-state retailers to pay sales taxes help it raise hundreds of millions in revenue? Or will it just force Amazon's affiliates out of state?

FORTUNE - California Gov. Jerry Brown on Wednesday signed the so-called "Amazon tax" into law. The measure forces out-of-state retailers (not just Amazon) to pay taxes on sales within the state. Earlier on Wednesday, Amazon (AMZN) sent notices to its affiliates in California, warning them that if the measure became law, the company would have to terminate its contracts with them because it's the affiliates' presence in the state that makes Amazon subject to the tax. Amazon has pulled similar maneuvers in other states where such taxes were imposed.

California, like other cash-strapped state governments, is flailing about for new sources of revenue. Proponents of the tax claim it will raise $317 million in revenue a year. But California should look around at other states that have tried this tactic: it usually doesn't work out so well.

A 1992 decision by the U.S. Supreme Court in Quill v. North Dakota held that online sales are not subject to taxation unless the seller has a physical presence in the jurisdiction imposing the tax. That has allowed Amazon and other retailers to undercut competition from bricks-and-mortar retailers by selling tax-free in states where it has no physical presence.

In its notice to California affiliates (technically including me, though I've never sold a thing through Amazon), the company calls the measure "unconstitutional and counterproductive." Amazon (AMZN) notes that it was "supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors."

That might be a slight mischaracterization. It's hard to imagine executives at Wal-Mart (WMT) sitting around a conference table, plotting ways to "harm" Amazon affiliates. And those companies have a point: Amazon and lots of other online retailers get to sell competing goods without having to pay the taxes the brick-and-mortar outfits must pay. That's not fair.

But fairness isn't the only consideration here. For one thing, there's that pesky Supreme Court decision. The California tax is like similar measures passed in other states in that it amounts to an end-run around that decision. Amazon might not have a physical presence in California, but its affiliates do. It's really not that simple, though, because whether through an affiliate or not, the actual transactions are between Amazon and the customer. Affiliates in the company's Associates Program simply send traffic to Amazon, and take a cut when a sale is made. In New York, only about 1.5% of Amazon's sales in that state came via affiliates before that state's "Amazon tax" was passed.

Despite the moniker, the "Amazon tax" applies to all online retailers that don't have a physical presence within California. Rebecca Madigan of the Performance Marketing Association, which opposes such taxes, says most affiliates who will be affected in fact don't work with Amazon, but with hundreds of other retailers. Some of the bigger ones include Overstock.com (OSTK) and Drugstore.com.
New York State passed its tax based on the notion that affiliates are basically storefronts for Amazon and other retailers. That measure is making its way through the courts, and Amazon is depositing the collected taxes in an escrow account until the case is settled.

In other states, such taxes have backfired, according to John Henchman of the Tax Foundation, a nonpartisan group that opposes the such taxes. Henchman has noted that tax receipts have actually fallen in Rhode Island and North Carolina as a result of the imposition of "Amazon taxes." A big affiliate, FatWallet.com, fled to Wisconsin from Illinois after the latter state imposed such a tax, he notes.

California could lose 25,000 "small businesses," according to CalWatchdog, which calls itself an "independent journalism venture," but which is backed by the libertarian Pacific Research Institute. That number comes from the Performance Marketing Association. Madigan, its executive director, told me that it includes anyone who has sold at least $25 worth of goods. So the true number of people who will lose their livelihoods is hard to pin down. But losses there will surely be."

http://tech.fortune.cnn.com/2011/06/29/california-passes-amazon-tax-amazon-pulls-plug-on-affiliates/

[Cats Cats Cats]

They are pulling amazon webstores of businesses as well as removing their affiliate status.  California is going to lose income and not get any sales tax.

[heironymouspasparagus]

Amazon is going to lose over 1/4 of their revenue.  Let's see who blinks first.  This should be interesting.  (If it sticks, you might want to get rid of your Amazon stock due to decreased sales and profitability.)

Anyone not paying their use tax in Oklahoma??  You mean we have that many tax frauds in the state??

[Red Arrow]

Amazon is going to lose over 1/4 of their revenue.  Let's see who blinks first.  This should be interesting.  (If it sticks, you might want to get rid of your Amazon stock due to decreased sales and profitability.)
Anyone not paying their use tax in Oklahoma??  You mean we have that many tax frauds in the state??

Mr Goodie Tax Payer here.  I use the option on the Form 511 that takes a percent of your AGI.

[Conan71]

Here's an interesting note.  Apparently Amazon has no problem reporting sales to state taxing authorities where required.  It seems the whole issue of collecting and remitting taxes is what has them in a snit.  Still up to the taxing authority to cross check with your return, but you run the risk of an audit, I would suspect if you do not report use tax and you've had multiple Amazon transactions over the previous year.


"We do not collect sales or use taxes in all states. For states imposing sales or use taxes, your purchase is subject to use tax unless it is specifically exempt from taxation. Your purchase is not exempt merely because it is made over the Internet or by other remote means. Many states require purchasers to file a sales/use tax return at the end of the year reporting all of the taxable purchases that were not taxed and to pay tax on those purchases. Details of how to file these returns may be found at the websites of your respective taxing authorities.

Oklahoma:

For Oklahoma purchasers, the tax may be reported and paid on the Oklahoma individual income tax return [Form 511] or by filing a consumer use tax return [Form 21-1]. The referenced forms and corresponding instructions are available on the Oklahoma Tax Commission website, www.tax.ok.gov. We are required to provide the notice above for Oklahoma purchases based on Oklahoma law (HB 2359) enacted in June 2010.

South Dakota:

For South Dakota purchasers, the tax may be reported and paid on the South Dakota use tax form. The use tax form and corresponding instructions are available on the South Dakota Department of Revenue website. We are required to provide the notice above for South Dakota purchases based on South Dakota law (SB 146) enacted in April 2011."


Edited to add: It appears they may actually collect sales tax for other taxing authorities, so not sure what the snit is with California.  here's the link to their tax policy page:

http://www.amazon.com/gp/help/customer/display.html?nodeId=468512#usetax

[heironymouspasparagus]

Red,
I use that too.  Just isn't worth the effort to track all that stuff.


Amazon is just whining.

[Cats Cats Cats]

Amazon isn't just whining.  This is a huge deal for them.  They basically have their prices 10% lower in California because they don't pay sales tax there.  They are using affiliates (who aren't exactly Amazon but get paid by Amazon) to try to come up with a reason to get their sales tax.  It doesn't matter that people should legally pay the tax later when they file taxes.  Right NOW it makes their items cheaper vs competitors.  This is huge for them.

[Conan71]

Amazon isn't just whining.  This is a huge deal for them.  They basically have their prices 10% lower in California because they don't pay sales tax there.  They are using affiliates (who aren't exactly Amazon but get paid by Amazon) to try to come up with a reason to get their sales tax.  It doesn't matter that people should legally pay the tax later when they file taxes.  Right NOW it makes their items cheaper vs competitors.  This is huge for them.

But reading their tax policy page, it looks as if they are collecting sales tax in other states, or at least their affiliates are, that's what's puzzling to me.  Did I misread their collection policies?  Even if they had to start collecting tax in California, many people will still buy on-line for convenience and availability if they don't like to screw with their local mall.  Aside from that, I would think Amazon would be losing out on a lot of revenue selling items for those 25,000 affiliates elsewhere around the globe if they stopped providing their offerings.

The more I think of this, it seems really short-sighted.  California accounts for less than 2% of their global sales, I believe.  What am I missing here?

[AquaMan]

My take is this. When you drive to another state to buy a beer or other alcoholic beverage and your sole intent is to consume that beverage in Oklahoma, then by the states' reasoning, you should pay the tax that Oklahoma would levy. Same with cars and other durable goods. That just isn't practical or acceptable to most citizens. Internet purchases are just like driving to Kansas for beer.

This is a huge global change in buyer behavior that business is changing to meet. The states seem unable to understand that they also have to adapt to business changes and not expect everyone to mold their behavior to meet antiquated tax systems.

California is desperate and suffers from a history of long term legislative/executive gridlock. Their solution isn't going to work. Has little to do with immigration law btw. Smaller states like OK could effect some interesting solutions considering that our legislature/executive setup is quite different and pretty much homogeneous in political outlook. This is one area we could actually lead the country if we only had the brain power to do so in OKC. We seem disposed to cutting taxes in the hopes that revenue will miraculously grow. Hasn't worked yet so we simply have a lower standard of living.

edit: Before anyone goes crazy pointing out the differences between beer purchases in Kansas vs avoiding tax altogether using Amazon I would agree. But its similar. Because of the lack of uniform consumption taxes by the states, the consumer merely does what consumers do...look for the best value or the best product and ignore state tax needs. The states are missing an opportunity if they do not meet together and create a strategy that replaces the loss of funding derived from taxing consumer purchases. Me? I wish there were a better method of funding basic government that didn't rely entirely on consumption or property ownership.

[heironymouspasparagus]

Charlie,
Huh??  You wanna rethink that?

Sales tax is not part of the price or a discount to the price.  It is always added after the price, with shipping at checkout time.  Amazon doesn't give CA a break on price based on sales tax included or not.  They don't do that for any state.

I agree it is huge deal.  They stand to lose 25% or more of sales.  (CA averages between 25 and 35% of our GDP, depending on item.)

[BKDotCom]

Sales tax is not part of the price or a discount to the price.  It is always added after the price, with shipping at checkout time.  Amazon doesn't give CA a break on price based on sales tax included or not.  They don't do that for any state.

Price of product x in store: $100
Price of product x on Amazon:  $100

which one is cheaper?
I'd say the one online is about 10% cheaper