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Will Amazon Get a Visit From the Tax Man?
theodp writes to tell us that according to the Wall Street Journal, Amazon.com has raised a few eyebrows with their strategy to avoid paying sales tax in eight states where they have warehouses or distribution centers. "As an online retailer, Amazon can avoid collecting sales tax in states where it has no presence, at least until Congress changes the law. But in states where a company has actual facilities, such as warehouses, states tax officials can require the company to collect sales tax. Despite operating hundreds of thousands of square feet of distribution facilities in the eight states, Amazon says it doesn't have any presence in them. The company argues that it doesn't operate the plants, its wholly owned subsidiaries do."
It was his last day, but then Lumberg asked him if he could just go ahead and come on in on Saturday then too, mmmm'kay?
Wheeeee
They have the same problem any distributor does, the relationship with the facilities they control. If they make income from the facility in a domain, then the domain will exercise a level of control over them.
no comment
Typically, if you're a customer, you have to pay sales tax to the seller if they have a "business presence" in your state. Business presence, of course, is quite ambiguous. Several online retailers have simply rolled over instead of fighting against this (Crucial.com comes to mind; they charge sales tax even if they don't have a presence in the state, and remit the tax to the taxing body in your state). Amazon on the other hand doesn't have the luxury of rolling over. Part of their competitive edge is not having a sales tax, and frankly, they shouldn't have to pay one as someone else mentioned, as the services their distribution centers use should be covered by their property taxes.
"what is Chutzpa"
I'm aging rapidly, I bought a new game and had no idea if my machine was good for it.
Let's see a state with an Amazon distribution center tax it, and then let's see Amazon.com close it down. That which happened to Ohio and Michigan, will happen again.
This is my sig.
The full 8.75% sales tax rate. Not only that, but the price taxed also includes the shipping. Not that that should surprise me but it certainly does annoy me. Amazon is suddenly becoming much less of a good buy than it was. Thank you Albany.
...or any other state that has no sales tax.
(just random thoughts here.)
They could then threaten to move the distribution centers to other states, and fire everyone there unless they relocate. Yes it's cold-blooded and etc.
But, it would make most states (esp. states where jobs and money are tight) stand up and take notice that you're about to cut a chunk of jobs (and income tax revenue, property tax revenue, injection of money into the local and state economy, etc) out from under them. Call the state next door and say "I'd like to build a large distribution center and hire (n*1000) employees for it in your state... we'll pay all the other taxes, but please don't charge us for sales tax. If the benefits outweigh the loss of sales tax, I'm willing to bet the state (esp. hard-hit or not-so-large states like Mississippi and etc.) would happily take the deal.
IIRC, Wal-Mart does this all the time (at least with local governments) - getting sweetheart tax waivers in exchange for the locality getting jobs and other economic benefits.
Now sure, it wouldn't be easy to just pull up stakes and move, but distribution centers are warehouses, which means that it's not a very complex infrastructure to move... the hardest part would be shifting the logistics.
Quo usque tandem abutere, Nimbus, patientia nostra?
Really though, sales tax is always a regressive tax and I don't think it is a great idea in general for that reason...
Sales tax is flat, it is only implied to be regressive because we assume, for example, the first $50,000 a person spends must be on necessities, and since that was all they had to spend as a $50,000 earner it was regressive when compared to a person spending 50,000 from a 100,000 in earnings. If the person earning 100,000 spent other 50,000, they would pay twice as much in sales tax as the 50,000 earner. The fact is that they both spent the same amount in taxes at the same spending level. That is not regressive, that is flat.
The income system in the US regressive, the sales tax is flat.
no comment
IANAL, *but* I know enough that you can't wiggle out of tax situations by simply creating new companies.
What you think you know, is flat-out wrong. One of the primary reasons for creating subsidiary corporations is precisely to deal with tax issues.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
Now, I like tax free(er, I mean, untaxed at time of sale, later calculated and payed by me, in accordance with the law) purchases from Amazon; but their logic seems, at best, deeply tortured.
In fact, my first thought on seeing that explanation was "Wait a second, Amazon has started up a defence contracting department?"
There's a joke about lawyers. . .
A bad lawyer can let a case drag on for years. . . a good lawyer can make it last even longer.
This is why if you're a smart businessperson, you should avoid putting your headquarters and facilities in states that have both sales tax and large populations. The best way to keep costs to a minimum is to pick states with no sales tax, followed by states with low population. So Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon have no sales tax at last count, though not all of them are ideal location-wise. So here's what you do:
By setting up a company in this way, you can basically cover the entire U.S. comfortably while charging sales tax for less than 1% of the population of the U.S.
Check out my sci-fi/humor trilogy at PatriotsBooks.
Buy from Microcenter.com and if they have a store in your state, they will charge you sales tax and shipping - even though there warehouse that they ship from is in Ohio, they charged my GA sales tax.
Why are you upset about that? If they hadn't charged you sales tax, then you would have been required to file use tax, which would have cost you the same amount and taken you a few extra minutes, whereas Microcenter saved you all the effort.
Let me guess, you don't file use tax and so you will single out and punish companies who don't aid you in your attempt to evade taxes.
If you are not allowed to question your government then the government has answered your question.
I was involved with a program through my University that put us in contact with engineers who were also entrepreneurs. We spent a week in the Silicon Valley area catch up with Alum who had gone on to become VPs of engineering at startups, or presidents of companies based on their work. One of them was a man who was Product Manager for the Kindle at Lab 126 in Cupertino.
He talked with us for a while, basically hinting at us very strongly at what the kindle was, and showing us some prototypes that eliminated any doubt as to the devices nature. He also had his staff talk to us. One man, who had worked closly with Bezos said this (paraphrased):
"Jeff HATES taxes. The reason that Amazon has made as much money as it has is because Jeff carefully played the game to avoid paying as many taxes as possible. Lab 126 is a wholly owned subsidiary, because if it wasn't, every California resident would have to pay sales tax on Amazon.com."
And that was for a research lab that was actively developing a new product for direct sales from Amazon.com. Somehow, avoiding sales tax for warehouses doesn't surprise me.
Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized?
It is in the interest of the people to provide a safety net for those who cannot earn enough to feed, clothe, house, and educate their families. A slight subsidy to lower-income families helps keep them out of subsistence crime.
Bill Gates is spineless
He prefers the term 'flexible'.
Ballmer joined in 1980. That video of him pitching windows 1.0 on youtube is not fictional.
Modding Trolls +1 inciteful since 1999