Amazon Fights Like Jungle Cat Against State Sales Tax

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In an effort to reverse the budget crisis, state legislators across the nation are targeting online retailers, saying that companies like Amazon and Overstock should not get out of charging state sales tax on transactions. But what once was just a tax issue has turned into a question of protecting some businesses at the expense of others, with Amazon now threatening to leave its California affiliates if new laws are passed.

Under the US Constitution’s Commerce Clause, Congress—rather than the individual states—has the power to regulate interstate commerce. The clause was originally meant to insure that one state could not discriminate against another with respect to trade by imposing tariffs or bans, but in more recent years it has been applied to e-trade and the relationships between states and corporations. As the LA Times notes, in 1992 the Supreme Court ruled that ”it would be too burdensome to require out-of-state retailers to collect sales taxes, except in states where they have a ‘physical presence,’ such as a store, warehouse, marketing call center or office.”

Without any uniform sales tax plan that can be applied nationwide to online retailers, the internet businesses are reaping large rewards, since they can offer bargains that in-state stores (which do charge sales tax) can’t compete with. Independent retailers are consistently undercut by the big online merchants, which legislators say damages the mom and pop economy. While prices in a physical retail store may be more expensive, these merchants help pay for community expenses like firefighters, police, schools, and even local charities. Since online retail companies do business in the state, albeit over the Internet, some think they should charge sales tax on their transactions. States like California, New York, Rhode Island and others expect to see hundreds of millions of dollars from laws forcing online retailers to charge their customers.

Thus far, however, attempts to make large online retailers pay state sales taxes have resulted in the companies pulling their warehouses out of those states and ceasing business with affiliates. The companies say that it’s unfair for legislators to make an out-of-state company collect taxes on their behalf, and in any case they are protected by the Commerce Clause.

“Amazon law” proposals like the one currently underway in California are supported by small chains and independent retailers as well major corporations, including Wal-Mart Stores Inc., Target Corp., Best Buy Co. and Barnes & Noble Inc. Opponents of the proposal claim that efforts to tax Internet sales would backfire— while evening the playing field for brick-and-mortar stores, such laws would harm the many small Internet start-up companies that depend on the kickbacks they get as affiliates to the big online retailers.

If sales tax collections are going to be required for online transactions, Amazon and others would prefer that one set of national rules be adopted, rather than state-by-state laws.

Related articles

• The Amazon Sales Tax Fight Goes To California (AMZN) (businessinsider.com)
• Walmart’s Pitch for Amazon Affiliates (blogs.wsj.com)
• Amazon.com Threatens to Cut Ties With California Affiliates (businessweek.com)
• Are Amazon.com’s Days Of Tax Free Selling Numbered? (blogs.forbes.com)