Amazon Battles States Over Sales Tax - New York News

Amazon Battles States Over Sales Tax

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Amazon.com Inc., the world's largest online retailer, has not charged sales tax in most states since its founding in 1994. And it has taken some extreme measures to keep it that way, The Wall Street Journal reported Wednesday.

Staff traveling around the US have been required to first consult a company map that shades each state red, yellow or green, said three people who have worked for the retailer. These people said they needed permission from managers or company lawyers before entering "red" states because a worker's actions might trigger laws that force Amazon to collect taxes in those states.

Such steps to avoid local levies allow Amazon to undercut in-state retailers by the amount they must add in sales tax, which can exceed eight percent.

A close examination of Amazon's corporate practices, based on interviews with more than a dozen former employees and people who have done business with the Seattle company, as well as a review of corporate documents, indicates that the company believes its sales-tax policy is critical to its performance.

Credit Suisse recently estimated that if Amazon were forced to collect sales taxes in all states, it would lose as much as $653 million in sales this year, or 1.4 percent out of an estimated $45.5 billion in revenue.

Amazon says it doesn't win orders by nixing sales taxes. Spokeswoman Mary Osako said the company focuses on "low prices, vast selection and fast delivery," adding that Amazon earns more than half its revenue in jurisdictions, including many overseas, where it collects sales tax or the local equivalent.

Like many online retailers, Amazon says it is obliged to add state and local sales taxes only on purchases from residents of states where Amazon has physical retail operations. But it also has defined retailing narrowly as selling, so related operations such as warehouses don't put it on the hook to charge tax, company representatives have said.

Amazon said it follows a 1992 US Supreme Court ruling. Legal experts say the retailer's approach is aggressive but within the law.

In response, lawmakers in nine states have passed new legislation aimed at limiting Web retailers' wiggle room to avoid charging sales tax. Amazon is now challenging the bills through a lawsuit and a ballot initiative. It is simultaneously redoubling its efforts to avert triggering their requirements for tax collection by retreating from states it deems unfriendly.

State and local governments nationwide this year will lose $10.1 billion to $11.3 billion in sales taxes not collected by web retailers, estimated University of Tennessee researchers in a 2009 report.

Amazon's campaign marks a new chapter in a long-running battle over sales tax. Shoppers for years have crossed state lines to get lower rates. Before the internet, many catalog-retailers didn't charge tax to out-of-state customers.

In the past two decades, the boom in Web retailing has turned a quirk of tax law into a nationwide fiscal battle, heightened by broader forces affecting the economy. State budget deficits are growing and so is the volume of tax revenue states lose to web commerce. But states' legal tools to claw back those funds largely predate the internet.

"Eventually, it'll be the US Supreme Court or the Congress that will be the final arbiter of the issue," predicts Richard Pomp, a professor of law at the University of Connecticut and expert on internet tax issues.

Amazon advocates a national sales tax for online retailers, which it argues would simplify tax collection. Congress is now considering such a law, but previous attempts over recent years have failed.

Source: The Wall Street Journal

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