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

they can pass it all they want...

[YesIAmAScript]

It's not Constitutional.

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

[timeOday]

My thoughts exactly. This has "interstate commerce" written all over it.

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

[superdave80]

Not constitutional in our normal, sane eyes, but we are talking about the courts. They make crazy decisions all the time, because they over think the minutiae of these cases. It should take them all of five seconds to declare this unconstitutional, but they probably will say it is fine. Don't think so? Look at use tax.

Relevant sections of the constitution state:
"The Congress shall have Power To ... regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;"

"No Tax or Duty shall be laid on Articles exported from any State."

Pretty much sounds like states can't make me pay a tax when passing goods from one state to another, right? Yet states have somehow subverted this by declaring it a 'use' tax, not a 'sales' tax. They claim that they are not taxing the sale of the item, but rather, the use of the item in their state. This would almost be a plausible argument, except for two tiny problems:

1. The use tax rate is the exact same as the sales tax rate.
2. The use tax only applies to all items used in a state, but ONLY items brought in from another state.

If this were a REAL use tax, every item 'used' in the state would be subject to it. The use tax is so obviously nothing more than an interstate tax by a different name. And the courts, almighty protectors of our constitutional rights, have gone along with this bullshit argument.

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

[flyingsquid]

How exactly has that stopped the government from doing whatever the hell it wants for the last decade or so? Just raise the specter of national security and every judge in the country (especially the Supreme Court) will roll over as always. Just say that the tax revenues go to anti-terrorism activities, or that the taxation is a way of regulating and controlling what comes into the state, to make sure it's not contraband.

If we don't pass this law, then terrorists will be able to buy books and other goods tax-free. It is highly probable that terrorist cells operating in New York will need to order books and electronics from online vendors. Taxing these sales means that it will now cost terrorists 8.4% more each time they order terrorism-related materials from Amazon, dealing a serious blow to Al Qaeda's finances. Imagine how furious Bin Laden will be when he sees that his sleeper cells have gone over their budget.

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

[davetd02]

Not so fast: You're right that thanks to the "dormant commerce clause," New York can't burden out-of-state commerce or commerce that just passes right through New York without stopping. For example, New York can't tax goods that pass through New York on their way from Maine to Florida on I-95, nor commerce that happens in other states.

But, almost every state that has a sales tax also has an excise tax for people who import goods from out of state. For example, in most states if you import a car into the state then you pay the sales tax on the car even if you bought it in a state with no sales tax.

New York can very constitutionally tax goods that are used in New York. And it can reach Amazon to enforce it because Amazon has "purposefully availed" itself of the New York market by advertising there and shipping orders there. See the case Asahi Metal.

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

[davetd02]

You mean the import/export clause: No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports...

The terms "import" and "export" in the Constitution refer to imports and exports from other countries. See the treatise here: "Only articles imported from or exported to a foreign country, or âoea place over which the Constitution has not extended its commands with respect to imports and their taxation,â are comprehended by the terms âoeimportsâ and âoeexports."

Case: Hooven & Allison Co. v. Evatt, 324 U.S. 652, 673 (1945), holding that "These provisions were intended to confer on the national government the exclusive power to tax importations of goods into the United States."

Last I checked, Amazon shipped from within the US, so it doesn't apply at all.

but I repeat myself

[suck_burners_rice]

This sounds like some kind of serious hogwash to me. The laws applying to Internet sales should be no different than those which apply to catalog sales. If you order something out of a catalog and you have it shipped to the same state where the catalog company is, then you pay the sales tax in that state just as if you had gone to a store in that state and bought the item. But if the catalog company is in Maine and you are in Florida, then you don't pay Jack Schitt for taxes. An internet site that sells stuff is nothing more than an electronic version of a page in a catalog. Amazon is nothing more than a vast catalog of products, as are most other electronic retailing sites. So if you're in the same state where Amazon is, it makes sense that the sales tax should be added to the price, but if you are in any other state, there should be NO tax of any kind on the purchase. Amazing and incredible that every time politicians are faced with a spending problem, they just invent more taxes, instead of reducing all the unnecessary spending. Or as Mark Twain said, "Suppose you're an idiot. And suppose you're a member of Congress. But I repeat myself."

Re:but I repeat myself

[digitalbeing]

Whether you order from an out-of-state catalog or an out-of-state internet retailer, you owe local sales tax on the purchase, at least in each of the three states I've lived in.

However, the out-of-state business is not obligated to automatically collect it - that's the interstate commerce part. You are supposed to self-declare it. How many people do you suppose keep detailed enough records to calculate this on their state income tax form? Or bother to declare any of it?

As much as I hate taxes . . .

[TXISDude]

This is an eventuality, and a needed leveling of the playing field. Why should a multi-billion dollar company get a competitive advantage over local businesses? Hate taxes all you want, but hate them fairly, not just those on your local small businesses. If e-commerce continues to grow, and is not taxed equitably with other businesses, this becomes a tax break for the big internet based merchants, and they need it the least. Consider this another play on the idea of a fair tax - one that levels the playing field for all businesses

Re:How does this work?

[doktor-hladnjak]

Courts have determined that when you buy something through the mail, the sale takes place at the seller's location not the buyer's location. Hence, when a NY resident buys something from Amazon, the sale takes place where Amazon is based--in WA. The exception is if the seller has a "substantial business presence" in the buyer's state, in which case the sale is considered to have taken place there.

It's not even a question of the seller not being obliged to collect the tax. In the example, NY has no authority to tax sales completed in WA.

To get around this, many states have so-called use taxes that are typically equal to their sales tax rates. Use tax is collected when a resident brings a good bought out of state back into their state of residence. The rationale is that the use of the item is being taxed, not the sale of the item. In practice, states only routinely collect use taxes on cars, because it's typically part of the process of registering and titling a car in a new state.

Personally, I can't see how NY is going to be able to enforce this law. They can't compel businesses outside of their jurisdiction to collect and remit these taxes without some sort of federal law.

Re:TAXED TO DEATH

[karmatic]

It is precisely because rich people are utilizing loopholes to avoid taxation like purchasing land and such.

No, it is precisely because the government spends way too much money. If our government spent less, there would be less need for taxes.

As a practical matter, it is always going to be difficult as a matter of practicality to tax the rich, or the corporations for their "fair share", as the more you raise taxes, the more profitable using offshore tax havens, etc. become.

Corporations, for example, must be able to deduct business expenses. If you don't, any business with razor-thin profit margins (a good thing, competition) would be bankrupt. A 5% flat tax would be wonderful for my software company with 95%+ margins, but "unfair" (and lethal) to someone making 1-5% doing manufacturing. They would have to raise their rates, making it difficult to compete with imports, requiring more taxation on imported goods to maintain a "level" playing field.

So, it's relatively easy for modern businesses to structure relationships with other companies (not in the US) by licensing technology (for a hefty fee), borrowing money, etc. Payments can go into trust funds, foundations, etc. outside US jurisdiction. To stop these kinds of games, you would need to ban:

- owning, managing, and receiving payments from foreign corporations
- banking by private citizens using banks located outside the United States
- ownership of US corporations by foreign corporations and vice-versa
- prior approval by the US government for all business transactions between US companies and foreign companies, in order to ensure that all contracts are "fair", and not allowing money to be funneled outside the US
- use of foreign-based prepaid debit cards/gift cards, and purchase of us-based cards by foreign nationals and corporations

Even if all this did happen, unscrupulous people would simply conspire with those outside the United States to act fronts. Long story short - the more you attempt to raise taxes on these people, the more profitable it is to be a "tax cheat", and the less revenue you actually bring in.

Besides, I don't know about you, but I'd rather not live in a world like that. On the other hand, reducing spending by the government would go a long way towards fixing budget problems. How about starting with the illegal/unconstitutional ones?

That being said, the simpler and easier the tax code is, the harder it is to dodge taxes. The problem isn't the rich, it's the insane inefficiency and incredible waste of government. A simple straightforward sales tax applied to imports and domestic sales (with a prebate to avoid screwing over the poor) would eliminate most loopholes, practically eliminate the need for the IRS (saving a decent amount of money), and save so much time and effort it's scary.

No "tax day", as your taxes are always paid. No itemization, no deductions, no worrying about whether this is an acceptable business expense.