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Internet Sales Taxes: Coming Soon to a Webtailer Near You

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May 15, 2008 – Comments (12) | RELATED TICKERS: AMZN , NFLX

This is a pretty smart blog item about the ridiculous position taken by outfits like Amazon.com regarding sales tax: that it's too tough to figure out what to charge, and how.

Of special note: Amazon runs Target's ecommerce site already, which has to charge sales tax because it's got physical operations in every state.

In other words, Amazon is claiming ignorance and crying Wolf "the death of e-commerce" simply to keep an unfair tax advantage it doesn't really deserve anyway. (I'm no fan of sales tax, but it makes zero sense that my local guy has to collect it, thus charge it, while Amazon can slither away without charging it, and thus has a built-in cost advantage...)

NFLX CEO chimes in at the end to say that this tax collection process is easy, and there are already providers who take care of the math.

Look for taxes to come to all Internet sales some time soon.

12 Comments – Post Your Own

#1) On May 15, 2008 at 4:04 PM, FourthAxis (< 20) wrote:

What if you don't have inventory in that state?  Are we talking a universal online sales tax?

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#2) On May 15, 2008 at 4:19 PM, TMFDeej (99.22) wrote:

Good post, Seth.  I was just talking about this a couple of weeks ago.  The thought of states charging sales tax on all things sold on the Internet prompted me to short Amazon in CAPS.

The Government is inventing new ways to get your money. Time to short Amazon?

Deej

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#3) On May 15, 2008 at 5:01 PM, Evlampius (< 20) wrote:

As I was saying: "...One thing about a human mind is that it can always find a way out."

The gov'ment can invent new laws and  add taxes to new things with an increasing pace but a human creativity will always figure out how to get around it. I'm sure they'll know how to screw that tax around.

Long Amazon

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#4) On May 15, 2008 at 5:29 PM, TMFBent (99.81) wrote:

Let's be clear about this. This is not a "new" tax. It would only be an enforcement of existing tax laws that people ignore because there's no likelihood of being caught. We are all supposed to pay state sales tax on out-of-state online purchases anyway. It's just that the vendors don't have to collect those taxes unless they have a physical presence in the purchaser's state. It's a loophole, and Amazon knows it.

What's shameful is that the company would basically tell baldfaced lies about the difficulty of enforcing sales tax collections when it's apparent from its operation of Target's web site that it already knows how to do this.

Bezos, tell your guys to stop the bullspit. Everyone, pay what you owe, and if you don't like what you owe, change that. Ignoring the law isn't the answer in a system where we have the power to change the laws.

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#5) On May 15, 2008 at 9:20 PM, LuckyStrike88 (< 20) wrote:

You act like it won't just be passed on to you and me.  As if we are not taxed enough.

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#6) On May 15, 2008 at 9:20 PM, wolfhounds (29.48) wrote:

I think there is confusion as to when sales tax applies. The Supreme Court ruled some years ago in a very detailed decision what constitutes nexus for sales tax purposes. But you must first look to individual state statutes to find what is taxed under sales tax provisions. In the Amazon/Target case, Amazon is providing a service to Target and each state taxes services differently. In fact, some states only tax specific services.

I'll give my fellow Fools an example from experience. In the 1990's, a subsidiary of the company I was Tax Director of, was in the business of transferring financial documents to disc which it sold by subscription. These could cost up $100k/yr. The state of MD took the position that we were a manufacturer and assessed sales tax on all subscriptions. The case went to the MD Supreme Court which upheld the lower courts ruling that we were selling information which was not taxed under the statutes.

I assure you that the maze of sales tax laws, intertwined with the technology of the internet, make defining nexus (which is far more than a physical presense) a daunting task. The solution is for congress to put all retailers on an equal footing based on the law of the land.   

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#7) On May 15, 2008 at 9:44 PM, FleaBagger (28.19) wrote:

rebel - perhaps I can clear up something. SJ (TMFBent) is not saying (nor implying) that Amazon will suffer because of unwillingness or inability to pass the sales tax on to its customers. That would be untrue. What he is saying (or implying) is that Amazon's sales volume or margins will suffer once they have to charge their customers the sales tax like all the brick and mortar stores (and Target.com) do. That is true.

Correct me if I'm wrong, SJ.

By the way, I think all taxes and all government deficits and inflation will be higher in the future, and the rich will get richer while fooling the electorate into thinking that their getting soaked by intrusive, expensive, omnipresent government, despite their profiting obscenely from it. 

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#8) On May 15, 2008 at 10:03 PM, TMFBent (99.81) wrote:

To whomever said the "tax would be passed along to consumers." Umm, that's exactly what sales tax is. So, yeah, it would.

To wolfhounds: I have no doubt this is complex, but Amazon is already evidently handling the task for target, and as Hastings of Netflix noted, there are services out there to do this for ya. It's not a good excuse to say "it would be difficult."

To fleabagger: I don't think Amazon will suffer that much. They might lose whatever advantage they get by people using them for a tax-free savings of 8% or so, but I doubt it would make a huge deal. I think their sales volume might go down a tad, but I think most of us shop at amazon because it's convenient and we can check prices quickly while we're doing it. The tax "savings" is a marginal element.

Again, I see no good reason that Internet retailers should get a tax-collection holiday at the expense of their bricks and mortar peers. The final argument used to be that collecting sales taxes would stunt the development of Internet commerce, and I think we're long past the point where anyone could make that argument without being laughed out of the room.

Sj

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#9) On May 15, 2008 at 10:11 PM, LouieJunior (23.78) wrote:

Amazon is going to need more tax attorneys on staff. Earlier this week, I posted some information on a dispute Amazon is having with Texas, conserning sales taxes.

The best little warehouse in Texas

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#10) On May 15, 2008 at 10:26 PM, Evlampius (< 20) wrote:

What? Bent I think you are on the wrong side here - as a consumer - I DO NOT WANT to get taxed more!! screw the taxes I want to pay LESS not MORE. I do not support this

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#11) On May 16, 2008 at 2:46 AM, jegr5347 (< 20) wrote:

Sales tax rules vary by state but the principles are very simple. Generally if you have employees, inventory, office space or any combination of the three, you have nexus in that state and are required to register with the state department of revenue and collect sales tax. If you have none, it is almost impossible for a state to force an out of state seller that has no physical presence within the jurisdiction to register and collect sales tax.

Most states make up for that shortfall with a use tax that compels the buyer to pay the sales tax on goods not purchased for resale but for "use". However, this tax is seldom enforced on non-business consumers.

 

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#12) On May 16, 2008 at 9:04 AM, TMFBent (99.81) wrote:

Evl -- you are not being taxed more. Have you read what we've been posting here? You would simply being paying the tax that you already (in most cases) owe.

Not avoiding taxes you legally owe (by having them collected by all Internet retailers, instead of those who are unfortunate enough to have a physical presence in the state) is not the same as paying new taxes.

It's more like actually paying for those grapes you eat in the supermarket aisle.

Sj

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