New York to Implement an 'Amazon Tax'

theodp writes "NY Governor David Paterson is expected to sign a bill requiring online retailers to collect sales taxes on purchases shipped to the state, even if they have no operations or employees working there. The so-called 'Amazon tax', which applies to Internet retailers who derive sales through affiliate programs, would end what for many New Yorkers had been tax-free shopping and generate an estimated $50M in revenue this fiscal year. Experts predict that other states could follow suit with similar provisions."

Comments

How does this work?

[The Ancients]

I'm not an American, so I don't know how the system works.

My guess is a sales tax is charged (we have GST - Goods and Services Tax - here in New Zealand) on goods sold within the state. Now I presume the purpose of this consumption tax is to pay for goods and services beneficial to the residents of that state.

Hence I guess the argument lies with whether the burden of payment for this tax (and reaping the benefits of such) comes down to those producing said goods and services, or consuming them.

Anyone care to clue us non-Americans in on how this is supposed to work?

Re:How does this work?

[A nonymous Coward]

The US political divisions can all levy their own sales taxes. There is no national sales tax, but there are state, county, and city taxes, not to mention all sorts of special tax districts -- mosquito abatement, hospital, etc -- which all have their own sales taxes, altho I think these last have to be given permission by the states, cities, and/or counties -- those details escape me.

If you have a brick and mortar store, it stays put and your sales taxes don't change from one sale to the next, only when the governments change them, and so it's a simple matter of looking up the tax on a chart or reloading the cash register.

The trouble begins with out of area transactions. If amazon in Washington state sells to someone across the country in Virginia, how are they supposed to know what that local Virginia tax should be? It's not just the varying state taxes, it's all the little divisiosns, and especially counties and all the mosquito abatement districts, since no one puts those down in their address, yet the tax depends on that. There are some horrendously complicated programs to determine county and tax district from the street address, and not only do they not work well even with perfect data, people misspell names and use Street instead of Avenue all the time. Thus the principle was established that the out of state retailer doesn't have to collect sales tax unless they have a physical presence in that state, and then I don't know the details of how they compute it, but presumably it is supposed to be easier. So Starbucks, for instance -- if they have a web store, they presumably have to collect sales tax based on the buyer's location, not any of their stores.

This whole thing could be cut like the Gordian knot if they changed the rules to say that every retailer, like amazon, collected taxes based on where the seller is, not the buyer -- after all, that's how brick and mortar taxes work. If you travel across state boundaries to buy something, say on vacation, you don't show an id to the clerk to establish your address so they can figure out the taxes -- they charge based on the store's location.

Imagine how much simpler it would all be. Of course, amazon would have to charge sales taxes on every thing they sold, not just things sent to Washington state addresses. That would lead to bidding wars, with states even offering special reduced sales tax rates to entice busienss to their area. The loser states would complain that this was unfair, as if the current situation has any resemblance to fair. Customers would also gripe and moan. But I personally wish someone would take the bull by the horns and push for this change, just to get rid of all the bureaucracy that goes along with the thousands of different tax rates.

I don't know about other states

[MarchTheMonth]

but i know in Ohio, we're supposed to report any out of state purchases that arrive in Ohio (like all the computer stuff i get from newegg) on our 1040s. i say supposed to because i haven't reported any of my purchases any year. god i hope no one from the ohio tax office is reading this...

New York took down license plates from people...

[Jafafa Hots]

...shopping in PA malls just over the border, and sent them notices that they had to pay NY sales tax. NY also is trying to force Seneca store owners on sovereign indian land to collect NY sales tax.

Sounds like an extension of existing policies

[r_jensen11]

It doesn't sound too irrational to me. States can already tax you for making purchases out of state and bringing them within state borders. If you buy a car in a state where the sales tax is only 5% and your state's sales tax is 6.5%, the state can charge you a 1.5% import tax. I know that imported liquor is subject to excess taxes in Minnesota if it surpasses a specified volume. I'd be surprised if this didn't apply to other states as well.

Re:Sounds like an extension of existing policies

[Dogun]

Those are called Use Taxes. IMO, they should also be ruled unconstitutional in some cases:

INIAL, and I may be woefully incorrect about all of this, but, IIRC, the supreme court has ruled in the past that an interstate commerce tax is unconstitutional if it fails to violate either of the following:

1) must be compensating for an identifiable a tax burden. Decreased revenues due to 'lost sales' in other states do not count - clearly the NY interstate book tax would fail here.

2) The inter-and-intrastate taxes must be approximately equal. (You can't jack up the taxes for interstate commerce beyond what you demand of your own intrastate commerce. NY is probably okay here.)

The Use Taxes on vehicles /might/ be okay, provided the vehicles have a tax burden associated with them. And, vehicles do, though the burden probably ought not to be measured by the sales tax inside the state, but rather whatever vehicle-specific surcharges the state has.

The Power to Tax

[kilodelta]

I thought that only the fed could levy taxes on interstate commerce.

Rhode Island gets around it by having what they call a Use Tax. Ask me if I've ever paid it. I haven't. I don't think anyone ever has.

Re:As much as I hate taxes . . .

[Jeff DeMaagd]

It's not that simple. The Supreme Court placed specific requirements on states and cities before they are allowed to do this, and I don't think any of them have complied yet.

I have a problem with governments being able to reach beyond their jurisdiction to demand out of state / out of city companies collect their taxes for them.

I sell things online, and I don't want to be liable for collecting taxes for 30 states and maybe hundreds of cities. I've heard that the big internet retailers are fine with these taxes, because it's a burden they can easily absorb while hurting smaller internet retailers.

Re:they can pass it all they want...

[EdIII]

You know I might get flamed for this, but.....

The Constitution has nothing to do with this. The founding fathers never envisioned that a person in California (did not even exist yet) and another person in New York could so easily create a sales transaction between them, AND within such a reasonable period of time, deliver the products. I don't think that they thought, or understood, that it could become such an EFFECTIVE loophole to bypass taxes. I don't understand the logical arguments behind interstate commerce laws, but perhaps it was to protect businesses from having to compete in an unfair environment. States could tax the hell out of "foreign" goods thereby decreasing competition (bad). However, the fact that the sending state is not allowed to tax it either, creates the loophole. I dunno, it's just my thoughts on it, and I admit that I don't understand the basis for the laws. I do understand it's effects however, and that leads to the real problem...... ......It's NOT FAIR. Although, I like the idea of getting away with not paying taxes and I have done it for years, it is not fair to local businesses. Only suckers (or principled individuals) paid taxes on their computer equipment in the last 10 years. Local equipment suppliers have a very hard time competing with it, locally at least, and then must rely on out of state sales themselves. So it's kind of ridiculous if you think about it.

So you have a choice. You can:

1) Support your local economy and state by spending the money on the sales taxes there...

or

2) Bypass taxes and spend a much smaller amount giving it to FedEx, UPS, USPS, or DHL.

Which one do you want? Give the "taxes" to a corporation or to your local government where there is a small chance it might go towards something meaningful to you?

Of course, this might all be a moot point since rising fuel costs are going to close the gap between Shipping Costs (the alternative tax) and local Sales Tax.

Re:and the retailers respond...

[jcr]

Then we'll see a bunch of businesses pop up in New Jersey and Connecticut which will forward packages to New York. They're not the buyer or the seller, so they'd have no obligation to tell New York what they shipped to whom and when.

-jcr

Re:but I repeat myself

[davolfman]

I'm pretty sure it varies from state to state. CA does it, but I don't think CO does for example. As I explain to the occasional european there are legal differences between states because of the fact that the US is a union of states rather than a state with provinces.

Oh please

[FranTaylor]

Your argument holds no water at all. Sales transactions have been conducted remotely via the mails since before the founding of our country.

Re:If I was a Online retailer

[NormalVisual]

The insurance companies in Florida got a pretty nice 12-year run of luck after Andrew where they weren't paying out substantial claims but were still collecting inflated premiums,. There was a lot of whining from insurers about "we need increases so we can replenish our reserves", but absolutely nothing mentioned about the billions that were collected between 1992 and 2004 that went straight into shareholders' pockets, the billions collected in the 70's and 80's prior to Andrew, or the billions in profit they've seen since 2004. They're insurance companies, they're paid to assume risk, so pardon me for not feeling their pain when they have to pay out the claims they agreed to. The fact that one of them is getting their knuckles rapped because they're willfully refusing to provide documents subpoenaed by the state isn't helping their relationship with the state either .

I'm looking forward to the unimaginable degree of whining we're going to hear from this industry once the San Andreas Fault has its next big slip.

Re:TAXED TO DEATH

[EdIII]

Well you are talking about something a heck of lot larger and well outside the scope of the article. It's not offtopic exactly, but "above" topic so to speak.

That being said, I do wholeheartedly agree with you. "If they were doing their job right they'd only need to tax income only tax sales."

If you mean to say there should be only ONE tax in the the whole country and that is all we will ever pay, then AMEN BROTHER, AMEN.

If we obliterated the IRS, and sent a bill to every single state for it's portion of the taxes we would eliminate 90% of the problem on the spot. We would have 50 states competing on the best way to collect taxes from their citizens. Of course the Census would have to speed up considerably, but it could be done. In addition to the IRS being removed, we should remove all taxes that go to the Federal Government period, and create a constitutional amendment banning the direct taxation of any citizen or corporation by the Federal government. The Feds can only create, modify, or delete line items on the Federal Budget which is then ratified by the states EACH year. So no more extortion by the withholding of funds by the Feds.

Since the states would be competing, an obvious byproduct of that would be that if you did not like the way New York was collecting the taxes, you could move to New Mexico, Texas, etc.

I personally believe that the states would be far more pragmatic about collecting the taxes than the Federal government. States would not be interested in active, privacy-destroying methods of collecting taxes as they don't have a need to support the intelligence community with data mining tools. More than likely, the states would just use property taxes, corporate income taxes, and sales taxes and leave the average citizen alone.

States would be far more inclined to go after businesses as well and eliminate any of those loopholes.

Re:they can pass it all they want...

[penix1]

So the cure would be to bar sales to New York residents letting them know why. A few years of New York residents not being able to buy things online should make them wake up and smell the coffee.

Re:they can pass it all they want...

[thePowerOfGrayskull]

The key difference is that it is the /individual/ who must pay the excise tax. That's a far cry from requiring every single business who ships into New York from paying. If this is allowed to stand, could you imagine the precedent it will set? Picture life as an online retailer, where you must pay separate taxes to all 50 states based on how your sales break up.

For a lot of small retailers, the answer is simple. Stop selling to New York.

Re:Nonsense

[Amilianna]

At the time the Constitution was ratified, the states clearly would have considered imports into the state to be imports.

This may have been true (not having been there, it would be difficult to say one way or the other) but realistically irrelevant in many ways. At the time the Constitution was ratified, we didn't have the internet, shipping methods or many things that have altered the world we live in. The job of our courts is to interpret the Constitution's intent and apply it to modern-day situations, which it was obviously not equipped to deal with since it had no knowledge of the changes that would occur. So to say that this is unConstitutional simply because the founders of our country could never have conceived of the ease of internet shopping is a bit silly. And, in our country, the courts are correct until overturned. That is the way our legal system works. So if you feel the ruling is unConstitutional, your recourse would be to sue the state of New York and take it up to the Supreme Court who could then make a direct ruling on whether or not their bill is unConstitutional or not.

Until then, it is a Constitutional as any of the rest of our laws that are drafted to deal with realities that a document written in 1787 couldn't possibly have conceived of.