The days of skirting around having to pay retail sales tax by shopping online may be coming to a close—and Amazon, of all companies, is supporting the effort.
Online retailer Amazon.com has a long history of fighting requirements for shoppers to pay their local state sales tax whenever a purchase is made via the Internet. Most recently, Amazon has been battling it out with California, which has been trying to force Amazon and other online retailers with ties to the state to collect sales tax on purchases.
Suddenly, though, Amazon is strongly supporting a bill that would allow states to mandate sales tax be collected, even when the seller is physically located in a different state. The bill, called the “Marketplace Fairness Act,” is sponsored by a group that includes Sens. Dick Durbin and Lamar Alexander. If passed, it would allow states to raise revenues via taxes in a choice of two ways: 1) The state could adjust its tax code and sign on to an interstate agreement that would compel online retailers to charge and remit sales tax for each Internet purchase that winds up shipped to that state; or 2) Even if a state doesn’t adjust its tax code, it could mandate that an as-yet-to-be-agreed-upon minimum Internet sales tax be collected by online retailers and handed over to the state.
Either way, the net result is that states would have the power to tax online purchases at the point of sale. As things now stand, consumers are supposed to use tax forms to pay their state sales tax on purchases they make online, but most people don’t bother. Often, consumers view online shopping as a means to skip paying hated retail sales taxes. (Are any taxes beloved, for that matter?) In Ohio, for example, over 60% of households said they made online purchases last year—but sales taxes for such purchases were paid on less than 1% of state income tax returns.
Because states are mostly powerless to collect sales tax on online purchases, online sellers have an obvious advantage compared to their brick-and-mortar counterparts. If a shopper lives in a state with 7% sales tax, that shopper instantaneously gets a 7% discount by shopping online, assuming this individual is one of the many that doesn’t later pay sales taxes on these purchases come April 15. Because of the proliferation of free shipping offers by online sellers, consumers often find it cheaper, and often more convenient, to buy online rather than at the store.
It’s been said that the situation gives online sellers an unfair advantage, which the “Marketplace Fairness” bill hopes to address. States aren’t simply on board with this bill because they’re worried about brick-and-mortar stores’ ability to compete with the Amazons in the marketplace; many states are interested because the bill would make it easier to collect more sales taxes and fill the state’s likely barren coffers.
As for Amazon, why would the world’s largest online retailer want to give up what seems to be an advantage over brick-and-mortar sellers? It appears as if Amazon realizes plenty of states view the current situation as one in which they’re losing millions in revenues annually. The states want that money, and they’re not going to give up until they get it. Rather than fight states one at a time and come up with dozens of different agreements, Amazon is accepting the premise that sales tax is going to somehow be collected, and if that’s the case, it’ll be easier to comply with one federal standard.
Amazon may also feel like it’s now big enough, and has a strong enough national reputation, to handle a world in which an item costs the same no matter if it’s purchased at Amazon’s website or at a Walmart cash register. Another online giant, eBay, which facilitates sales for countless small businesses all over the country, has come out against the bill because it would cause an undue burden on smaller e-vendors—who have a hard enough time as it is competing with the Amazons and Walmarts.
The bill would not affect especially small businesses, however: Any seller with less than $500,000 in sales annually would not be required to collect and remit sales tax.