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."

Comments

Re:hey, isn't today Gates' last day at Microsoft?

[heliocentric]

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?

Of course it will

[howardd21]

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.

Re:Of course it will

[ottothecow]

"Amazon is benefitting from police and fire protection, and other services in the states where it has facilities, it ought to be collecting sales tax just like any other local business." -FTA

I disagree, they should be paying property tax for these services (which I am sure they are). They should only be paying sales tax on retail sales not on products that are merely being distributed and since this is a warehouse not a storefront, state sales tax is not the answer.

Really though, sales tax is always a regressive tax and I don't think it is a great idea in general for that reason...

Re:Of course it will

[jellomizer]

Sales Tax is a tax the consumer pays not the company... Amazon is already paying for property taxs, revenue tax, employee wage tax.... Paying sales tax is a tax that We pay as a consumer to the company who then resends it to the apporprate state/county/city on your behalf. So if they are based in Delaware but not in New Jersy they are not paying taxes for their services in Deleware they are paying New Jersey because they want the income from that person.

Re:Of course it will

[the eric conspiracy]

There's no particular reason to compare the amount paid via sales tax to a person's income; compare it to the amount he consumes. It's not regressive. It's perfectly flat.

Of course there is a reason, and it is that a person with a lot of income spends a lower percentage of that income on consumption.

The result: a sales tax is regressive.

Re:Of course it will

[sherriw]

So.. you're saying the rich should pay more? Why exactly?

With a sales tax, the rich tend to buy more non-necessities, and more expensive ones like cars and homes. So they naturally would pay more in sales tax than a lower income family.

True, they would only pay a smaller percent of their income if they tend to save and invest that income. Rather than spend it. But how many rich people do you know who don't go out and buy fancy cars and big homes?

Progressive taxes (income tax which increases in percent as the principal increases) are nonsense. Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized? It is not 'unfair' that some people have higher salaries than others.

Re:Of course it will

[Anonymous Psychopath]

Define Rich.

That's easy. Someone who has a lot more money than you.

Re:Of course it will

[Actually, I do RTFA]

Why should someone who works harder, innovates, starts their own business, or pursues a higher-wage career be penalized? It is not 'unfair' that some people have higher salaries than others.

It's a strawman (and not a clever or subtle one) to claim that advocating a progressive tax means that one thinks different salary levels are "unfair".

One can advocate a progressive tax based on the Rawlsian argument, namely, why should someone who is naturally smarter or stronger benefit over someone who, through no fault of their own, was born crippled. These arguments beg for a tax on natural gifts. Unfortunately, income tax is the best stand-in.

Alternatively, one can use two economics arguemnts. The first is that the rich consume more goods then the poor. They have more possessions that require protecting, make more use of air traffic controllers, recieve higher unemployment beenfits, etc. etc.

The second is that law and order are worth more to the rich. Someone $300,000 dollars in debt, about to lose their house, car and all worldly possesions, might value a continuing rule of law at a very low, or even negative rate. They have little to lose, and can probably gain if they are limited to whatever they can hold in their hand. The rich on the otherhand have vacation homes, yahcts, etc. They have a lot more to lose.

Progressive taxes also result in higher salaries for those at the bottom, as the allure of the future raise is lessened, making it cheaper to give people at the bottom each a smaller raise. That, combined with the lower tax burden, increase the freedom to attempt to become an entrepuner. Progressive taxes increase the number of people who will attempt it, while only hurting those who succeed.

There's a practical argument. If you insist that everyone pay the same amount, people would quickly become bankrupt with their 1/300,000,000th of the national budget. The rich have to pay more taxes because, well, the top 1% owns 98% of the country.

There is also a question of original aquisition. The original obtainment of any good is never fair. The first farmer gets the best land. The strongest evil warlord stole the diamond mine. The money that you get paid with was never entirely yours, because the person who paid you never entirely owned it, etc. etc. back to when it was originally aquired. Hence, redistribution attempts to correct that in an ongoing fashion.

Re:The loophole has to exist

[TooMuchToDo]

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.

Amazon for 1000

[mapsjanhere]

"what is Chutzpa"

That will close a distribution center...

[tjstork]

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.

Re:That will close a distribution center...

[ivan256]

It's not that big companies get to make the laws... It's that governments need to realize that their decisions have consequences.

Why shouldn't a company move their operations to an area where the local authorities are going to take a smaller cut of their profits, or impose a lower overhead on their operations? Those other governments seem to do just fine without the additional revenue...

Move at least one center to Oregon?

[Penguinisto]

...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.

/P

Re:Oppsie for Amazon!

[jcr]

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

Re:How is Sales tax regressive?

[ivan256]

It's actually progressive, since necessities are usually excluded from the sales tax. Thus people with more expended disposable income are taxed more.

How long?

[JSBiff]

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.

Re:Nope

[tompaulco]

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.

Bezos and Taxes

[WolverineOfLove]

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.

Subsistence crime

[tepples]

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.

Re:hey, isn't today Gates' last day at Microsoft?

[Sponge Bath]

Bill Gates is spineless

He prefers the term 'flexible'.

Re:hey, isn't today Gates' last day at Microsoft?

[Gewalt]

Ballmer joined in 1980. That video of him pitching windows 1.0 on youtube is not fictional.