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Amazon was just the beginning

I agree with this.

By telling retail giant Amazon.com that it owes $269 million in uncollected sales taxes, the State of Texas has waded into the national debate over taxing Internet sales. The state comptroller’s office said it has sent similar demands for payment to other online retailers.

Allen Spelce, a spokesman for the comptroller’s office, said he could not release the names of the others, but he said they are “high-profile” online retailers that have not been collecting sales taxes in Texas.

Traditional merchants and industry groups have praised Texas’ recent demand to Amazon, saying it’s about time that the world’s biggest online retailer is made to play by the same rules as everyone else.

“It’s really just a fairness issue,” said Steven Bercu, CEO of Austin bookstore BookPeople. “The state, for some reason I don’t understand, has been picking its favorite retailer, and for some reason it’s been an out-of-state retailer.”

“People walk in here, talk to our booksellers, get recommendations, learn about what would be a better choice for reading material — and then it’s not uncommon to hear them say, ‘I think I’ll buy it on Amazon and not have to pay any sales tax,'” Bercu said.

Texas handed Amazon a bill for $269 million the other day. We don’t know yet how much the other retailers have been dinged for, but I’ll bet it’s a nontrivial amount, and I’ll bet there’s still more where that came from. The main question is if, not when, these retailers remit, and whether the matter will ultimately be settled in the courts or the legislatures. Former Deputy Comptroller Billy Hamilton sums it up, and I couldn’t agree with him more:

In the early years of Internet commerce, Hamilton said, political theory seemed to be that promoting online commerce was more important than any lost sales tax revenue.

“I can remember making a speech in 1995 where I said, this is going to be a big problem for states if this online retailing takes off,” he said. “And somebody stood up and said, ‘You’re trying to strangle the baby in the crib.'”

Hamilton, however, said he was bothered by online retailers who acted as if “they had invented manna from heaven and that it should exempt them from the rules of gravity.”

Amazon and other online retailers took the stance, Hamilton said, “that because this was on the Internet and was an incredible business model and this was the future, that somehow that exempted them from any social or any other kind of obligation. When you got right down to it, to me it was a kind of an arrogance.”

Hamilton said the state’s recent demand that Amazon pay up shouldn’t be seen as the endgame in the debate over the issue.

“The comptroller is taking a shot,” Hamilton said. “I wouldn’t hold my breath or imagine this is somehow going to help this budget problem that they’ve got right now — because it’s undoubtably going to be litigated.”

The original justifications for exempting Internet sales from taxation are at least a decade out of date, and are having a significant impact on state and local budgets. Last I checked, even online retailers benefit from things like roads and law enforcement and other things that state and local governments provide, too. The one thing I’ll add is that ideally this would be addressed by Congress, since as I recall the original prohibition on sales taxes for online purchases came from Congress. Unfortunately, I can’t see that happening any time soon, so off to the courts we will surely go. Dan Gillmor has more.

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4 Comments

  1. Ross says:

    Wasn’t the argument against collecting state and local sales taxes based on the lack of a physical presence in a given state. That was one reason Gateway Computers didn’t have an office in California for many years.

    If Amazon has a physical presence in Texas, they should pay. If they don’t then the issue is pretty nebulous. My long term feelings on this are that the FEds ought to impose a 5% tax on interstate sales to states where retailers don’t have a presence, with that tax remitted to the states that receive the shipments.

  2. Tim says:

    Amazing as a large warehouse near DFW airport.

  3. Tim says:

    I hit submit too early. I remembered that I read a recent article that the warehouse is owned by an Amazon subsidiary and their argument is that because of this they don’t owe the tax money.

  4. Ken says:

    Slightly disagree.

    The only reason states seem to believe they are entitled to these taxes from online sales is because they collected them on purchases from in-state brick-and-mortar retailers in the past. Online retailers, however, do not put the same burden on the state’s resources (roads, police, fire, etc.) as brick-and-mortar retailers do, and that’s why I think the states are making a specious argument in trying to claim the sales taxes “lost” through online purchases. If they want to recover the “lost” sales taxes, they should put a tax on the delivery companies that actually bring the shipment to the purchaser’s door (the one link in the chain that actually does use the state’s resources). Logical taxation; problem solved.

    Some states (e.g., Pennsylvania) even have a “use tax” where the purchaser has to pay sales tax on anything bought out of state and brought into the state…even if the purchase was made in Delaware, which has no state sales tax. What exactly is the purchaser getting from the state in exchange for paying the tax, and why does the state feel entitled to claim tax in this case?

    That said, even if Amazon (or any online retailer) did end up having to charge state sales tax, I would still use them because I can find exactly what I need and usually at a substantial discount over any brick-and-mortar retailer. So it wouldn’t be that much of a calamity for the sales of online retailers.

    Hi-larious, though, that a state as red (and presumably tax-hatin’) as Texas is trying to collect these questionable taxes to which it thinks it is entitled!

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