NY Times, LA Times Want Amazon To Collect More State Taxes

theodp writes "Recalling that CEO Jeff Bezos originally explored placing Amazon.com on an Indian Reservation near San Francisco to 'have access to talent without all the tax consequences,' the NY Times argues it's time to put an end to the e-tailer's 'entity isolation' tax-avoidance games. The LA Times chimes in, saying Amazon's claims that collecting sales tax constitute an undue burden are 'worth a horselaugh,' noting that Amazon boasts it has no problem keeping track of millions of unique products."

Comments

Note the lack of mentioning all the other taxes

[AndOne]

The NY times article chooses to skip mentioning all the taxes other than sales tax Amazon would be paying in those areas with its isolated tax groups. I also think it's cute that they feel amazon has a moral right to pay more taxes in this 'time of hardship'. But really, people are surprised when a company is avoiding as many taxes as possible, especially a tax that would make them less able to make a profit? They're surprised people aren't paying use taxes?

Re:Note the lack of mentioning all the other taxes

[jacobsm]

You are missing the point of the article, the articles are not proposing that Amazon et al. pay one more cent of tax on their income just collect and remit to the proper taxing authorities taxes that are legally owed by the purchaser of the goods. Would it increase the cost of doing business for e-commerce firms, yes but so what? The cost of doing business is part of any business plan. Amazon and its ilk are utilizing a legal loophole to get an unfair advantage over local merchants.

The handwriting is on the wall, there are too many states hurting for revenue. The current environment isn't fair, isn't sustainable, isn't long for this world.

Re:Note the lack of mentioning all the other taxes

[AndOne]

Requiring retailers(online or not) to collect use taxes starts us down a rather slippery slope and is probably not constitutional. Requiring they collect sales tax without 'a nexus of operations' is unconstitutional.

I didn't miss the point of the article, I was pointing out that the article is disingenuous in it's description of the situation. The only legal loophole amazon is exploiting is the separation of sub-entities related to it's primary business as a way to avoid the presence of a legal nexus of operation. And those sub-entities are still paying taxes with respect to everything else that they do. Even if that loophole was closed then only a handful of additional states would be receiving sales tax.

Additionally, if laws are passed requiring all online businesses to collect sales taxes this will have a distinct chilling effect on all but the largest of retailers.

As a final note, perhaps states should start enforcing use taxes if they're that concerned about it, but given the complexity of doing so, and the fact that enforcing it would probably cost more than could be recouped from them, use taxes still seem rather silly in their logic. Americans(speaking of patriotism) pathologically do not like paying taxes and expecting them to volunteer(in the sense of paying a nearly totally avoidable and confusing tax) even more money during a recession seems like an exercise in futility. Perhaps if the government provided a line item receipt on how tax money was spent we might feel differently.

Re:Note the lack of mentioning all the other taxes

[Targon]

I didn't say they should not be taxed, but that the taxes should be paid by those who have access to the services. For example, someone living in New York should not have to pay for local services provided in California. Also, if I go out of state to make a purchase, should I have to pay a SALES tax in the state I live in? Paying INCOME taxes makes sense for a business, but you have to look at what resources the business will be using.

This is really what it comes down to, fair taxation. The idea that police, fire departments, and emergency services have to be paid for makes sense, and having it paid for by those who have access to these services if they are needed makes sense. So, sales taxes make sense, since even those visiting will WANT those services to be available. So, what about the Internet? If the local Internet Service Providers are paying their taxes in the places they provide service are doing all the maintenance, and the government has not paid for the deployment or maintenance of the lines, then it does not make sense for those out of state to be forced to pay a sales tax.

This goes back to the problem of where tax money comes from and goes. Shouldn't schools be paid for by EVERYONE living in that school district, not just those who own property in that district? If I were to put up a walled community, provide private police, medical, and fire services, and use NOTHING from the outside, then those living in that community really use nothing from the outside, except perhaps roads to bring supplies in and out. People living inside would not feel that they should have to pay for the services of those outside since their entire community would be cared for. On the flip side, federal income taxes, and even state income taxes would make SOME sense to pay since it is expected that the government DOES need tax money to pay the representatives of the people.

Oh, and to answer your unspoken question, Long Island is an expensive place, but teachers in many districts make more in under three quarters of a year worth of work than most people working in that area. Looking at your figure, they make $50,000 for how many weeks of actual work each year? Remember, all those school holidays, and summers off, and government holidays....If I could take my current income and get that many paid days off each year, I'd be a lot happier, that's for sure.

As for government, if they would cut services to pay off the debts so they could in turn lower taxes over time, people wouldn't mind. But running a deficit year after year after year, with no intention of ever getting the debts paid off is also a part of the problem.

Re:Note the lack of mentioning all the other taxes

[dummondwhu]

Except it doesn't seem to work that way. It's more like, "Oh, look, more tax revenue! We can create even more government bureauocracy and dig a bigger hole of debt!". No thanks, I'd rather keep my money and drop a lot of the useless crap that people think they need government to do.

Re:Note the lack of mentioning all the other taxes

[EastCoastSurfer]

For one, I have never heard of a teacher getting paid $80,000. Most teachers that I know make half that, if that much. The ones that make more are in the 50,000 dollar range.

Depends on the state. In the south it can be as low as 30k, in the NE as high as 80k.

Also, government jobs generally pay much less than their private sector counterparts.

Not totally true, but the big difference is that government jobs rarely if ever go away. In this tough economy where companies are having to cut salaries and/or lay people off, government just keeps on hiring and paying people to do lots of nothing. And before you say that's not true, I've worked for the government before and have seen all the waste first hand. Bothered me enough that I quit and went back to private enterprise.

I do not understand why you feel that Amazon sales should not be taxed.

It's not Amazon getting taxed, it's you and me. IMHO, I'm getting taxed more than enough. The government wastes enormous amounts of money. The first step to paying off the debt is to cut the cost of government.

Re:Note the lack of mentioning all the other taxes

[iamhassi]

" I also think it's cute that they feel amazon has a moral right to pay more taxes in this 'time of hardship'."

I think it's cute that the NY Times forgets Amazon is online, they don't rely on local people, and could just as easily move overseas as it could to another state to save that billion dollars in taxes. I'm sure there's plenty of states that would welcome Amazon and the 15,000+ jobs it brings with tax-exempt status.

Please California, chase away all of your big businesses! Midwestern states would welcome the jobs.

If online taxes were required I'd just purchase more from eBay and chinese vendors. Is that what California wants? People are going to buy wherever it's cheaper, whether it's down the street, online or overseas.

From the NYT article, they are following the law

[Suki I]

Amazon has found a way to put portions of its business into the tax-haven equivalent of reservations. By creating wholly owned subsidiaries for the parts that are treated separately for tax matters, Amazon is under no obligation to collect sales tax. This legal technique is called “entity isolation,” said Michael Mazerov, a senior fellow at the Center on Budget and Policy Priorities in Washington.

The state and federal governments made complicated tax laws and Amazon is following them in a business efficient manner. What is their problem?

Smaller companies?

[alzoron]

It might not be an undue burden to Amazon, but what about smaller online companies? You could use software to manage the collecting of sales tax for everything but the real problem comes to sending off that money to every town, county, and state that collects sales tax. Someone buys something for a couple bucks and suddenly you have to send payments of a few cents to three different places. Even if you save it all up and send it bi-yearly you could be looking at thousands of separate payments based on how widespread your client base is.

You can't just look at a huge company with millions in revenue and make a one size fits it all decision.

Re:Smaller companies?

[berberine]

Ten years ago, I worked for Nebraska Bookstore. It's not huge when compared to Amazon or Barnes and Noble. I worked in their catalog department. When we rang up an order, out of state purchases got 0% tax and, if it was shipped in-state, there was a little chart above the register with each city listed alphabetically and what their tax was. This was because, in Nebraska, there is a state tax and a city tax. So, they figured out what the two together were and made a handy list for us.

Everything we did was manual but, from what I've heard, they now have a computer program that figures it out for you and you just punch in the complete total (purchase+tax+shipping) when you ring it up. I would assume that since this was ten years ago, there are better programs now to do the same thing.

Re:Smaller companies?

[ZorbaTHut]

My mom has been trying to start a new museum lately. One of the big projects is to set up Internet-based donations. Naturally, every state has its own laws on how donations to non-profits work. Non-profits have to be registered separately in every state (technically there is a "standard form", but the states who take it all require extra documentation as well) and tax reporting is just a gargantuan enormous burden. Too complicated for any small non-profit to ever manage.

As a result, there are companies that specialize in doing this for you. They take a small slice of the donations (something like 2%) and in exchange they manage all of the annoying reporting and legal issues involved.

It turns out that they're good at it. So good, in fact, that the Red Cross uses them because they find it cheaper and more reliable.

I see no reason whatsoever that a similar business couldn't form for internet sales tax. And, in fact, I find it almost inevitable that such a business will form once it becomes an issue. So, as for how much it will cost, and how difficult it will be to manage: well, about 2% of your revenue, if the non-profit area is any indication.

Plus the taxes that you now have to pay, of course.

Re:From the NYT article, they are following the la

[julesh]

The letter of the law may allow someone with access to expensive lawyers to avoid paying taxes, but it is not in the spirit of the law?

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

(US Appeals Court Justice the Honourable Learned Hand)

Re:How do you think it works in the EU ?

[Dhalka226]

Those entities where they do it are done on a country level, which is fairly simple.

I won't claim that Amazon can't get it done, because they're smart people with incredible infrastructure and metric crap-tons of money that they could throw at the problem if they so desired. I can tell you that I live in Cook County, Illinois where Amazon would be forced to collect not only the Illinois state sales tax, but also a Cook County sales tax. I can tell you that since they sell cigarettes, that county sales tax is different for that product versus others. I can tell you that while I myself do not live in Chicago, if I did and I ordered from Amazon they would also then be obligated to collect yet another sales tax. And that, you guessed it, Chicago also levies "sin taxes" on certain products including cigarettes, soft drinks and--don't ask me why--bottled water. And I can tell you that the tax rates are scheduled to change in July 2010.

That is, of course, one potential set of jurisdictions for one potential customer. Now multiply that ridiculous level of legal complexity for every possible combination of city, county and state that are applicable and you're quickly arriving at a system of rather ridiculous proportion. Better that we not bother, in my mind.

Before anybody says "but we're only talking about state taxes!" I'll head it off by saying two things: First, that if we're going to make them collect state taxes you can bet the next debate is going to be about other levels of government as counties* and cities all complain about how their budgets are struggling too. And second, that it only helps marginally. In my example, about half of those county and city taxes are actually collected and administered by the state of Illinois, essentially making them state taxes that are only applicable in certain areas.

I understand the plight of the brick-and-mortars who not only have to compete on price but also on a lack of sales tax. I also understand the struggles of many cities and states with their budgets for the past decade or so now. But this is a ridiculously complicated system, far different from the "ZOMG X% VAT" that Amazon deals with in other countries. Setup would be bad enough, much less maintaining compliance with all such systems.

Impossible? No. Unwieldy? Definitely. Worthwhile? Not in my mind.

* I think Cook County may be the only county in the country that is legally permitted to levy its own sales tax, but I'm not sure.

No Way!

[b4upoo]

This is an attempt to please brick and mortar stores who want to push electronic sales into the toilet. On line sales already carry a great burden in shipping costs. If you add taxes on top of shipping costs you kill online sales completely.

Re:No Way!

[AnotherUsername]

And brick and mortar carry a great burden in paying for their building(making it customer friendly, as opposed to being a warehouse), and all that comes with having a brick and mortar store. Guess what, it's part of having a business. They already have taxes on top of all of that. Many of the bigger stores have an online store as well, so they have both ends to deal with. Again, it's part of having a business.

Re:I like my tax heaven

[Anonymous Coward]

Yeah, a buddy of mine drives 3 hours to come in from Delaware to the People's Republic of MD.

There is _nothing_ wrong with avoiding taxes. My God, if we have a right to an attorney to help us avoid jail time, we ought to have a right to avoid spending 1/3rd of our life working for the government.

Burden

[Skapare]

Yes, there is a real burden here. A "brick" store only has to deal with exactly ONE tax rate, which is the rate for their physical location. A chain of stores would only need to deal with this on a per-store basis. However, the web retailer is expected to charge tax based not on their own physical location, but rather, the location of the customer ordering the merchandise. This means keeping a database, and keeping it updated, for each and every single tax jurisdiction in the country. In many states this varies by individual city and town. There are thousands of these. In some cases they are even split across zip codes. And it's not just rates to worry about. Different jurisdictions have different exemptions of what products don't require a tax (food in one place, only perishable food in another, bath products might be included in another, school supplies exempted in a few, etc).

Then there is the issue of ensuring the taxes get paid to the proper government entity. That and making sure people are not subverting the system by sending packages to other locations.

Some solutions to this are possible.

I suggest that instead of the stores charging the tax, the credit/debit card processor charge the tax. The advantage of this is that they readily know the billing address of the account holder. Their payments to the government entities would be more in bulk, instead of these governments getting thousands of small payments from all the "mom and pop" web sites that would be compliant with tax law changes. The one change that would need to be made is each credit/debit charge would need to have split up according to product type classifications (a federal standard needed for that).

Another alternative is for a federal law that simply requires each of the states to submit ONE tax rate for the whole state, and accept a set of exemptions designated by that federal law, to be part of the inter-state tax program. One other requirement is, to be a part of it, they treat in-state web retailers exactly the same as out-of-state (e.g. all or nothing).

The burden on web retailers is NOT a myth. It is very real. Amazon can probably handle it. But you know the smaller retailers will be next, and eventually they will try to impose this on others. Taxes are essential, but it needs to be kept simple. Also, smaller retailers need to have a SINGLE (not 50) payment destinations (a central clearinghouse for this).

You misunderstood something

[dreamchaser]

It's not Amazon that would be paying sales tax. The buyer pays the tax. Amazon just doesn't want to a) deal with administering separate tax rates and payments to multiple States and b) have it's perceived prices increase with the addition of tax.

The funny thing is in general I agree with your view on taxation; it's just that in this instance your argument doesn't fit the issue.

Once again, it's the government's fault

[MikeRT]

All it would take is for California and New York to each pass a law creating a standardized tax rate for their entire state. No local sales taxes, etc. Just a single state sales tax which is redistributed by the state tax authority to municipal governments. It would then be as easy for Amazon as "cut a check every month and mail it to Sacramento or Albany."

Re:The dangers of stupid taxes

[drinkypoo]

Now, for out of state businesses, shouldn't the ONLY real burden be on the transit systems(roads and rails)?

No. Sales taxes go into general coffers are are used to pay for all types of services. Rails are private, we have no nationalized rail in the USA. That leaves roads, and heavy trucks do almost all the damage done to roads by vehicles (the majority of the remainder being done by weather.) Amazon also receives the benefit of police protection; without police, anyone would be free to loot their warehouse. They receive fire protection in that the FD will show up and try to put a fire out if their building is burning. Need I go on?

Re:How do you think it works in the EU ?

[Anonymous Coward]

I really don't get that argument - they have no physical presence (ignoring their distribution center locations) in your county/town (maybe in your state, I don't know how large a region each distribution center services). Why should they be subject to sales taxes from an area they have no presence in? I would view this as equivalent to your home county trying to charge you taxes on souvenirs purchased in NYC or DC. I would be perfectly fine if they charged sales tax at the site(s) of the distribution centers that ship the products or at the location of their corporate headquarters.

Welcome to the future.

[jonpublic]

Where every single tiny loop hole in the law is exploited to the fullest by the large cooperations and everyone else has to obey the spirit of the law because they can't setup the giant shell game that is required to avoid paying taxes. How many fully owned separate legal entities comprise Amazon? It's all one giant cooperation for all intents but they break it up into a ton of little pieces to get around the spirit of the law. Leaving everyone else to have to make up for Amazon skips out on paying. It's not a level playing field.

It reminds me of the ownership structure of Ikea, which is extremely complex, but ultimately results in almost no taxes. Which is great for Ikea, but horrible for everyone else who has to pick up Ikea's share.

http://en.wikipedia.org/wiki/IKEA

Look it up under corporate structure.

Re:How do you think it works in the EU ?

[MooUK]

If the buyer lies, that's the buyer committing tax fraud and the buyer's problem, not Amazon's. 'Least, that's the way I'd see it. Require the buyer to state their county, and work it for that. Job done.

Re:The dangers of stupid taxes

[Anonymous Coward]

>Amazon also receives the benefit of police protection; without police, anyone would be free to loot their warehouse. They receive fire protection in that the FD will show up and try to put a fire out if their building is burning. Need I go on?

Which their warehouse has property taxes, the employees pay income tax on, also the fed-ex and ups charges include fuel costs and taxes.
They pay taxes on their water bill, power bill and heating bills for those facilities. As well. Oh and the fire protection is usually a part of your water bill.

This is about brick and mortar retailers using the tax system to destroy someone they can't compete with. And states that can't control their spending trying to tax Amazon rather than enforce their own use taxes. Oh yeah Amazon can't vote you out, but your voters sure can.

The press is self-interested on this topic

[giladpn]

The NY Times and other paper publications are right now on a crusade to attack the low cost base of internet business.

They are talking about de-indexing Google for similar reasons.

We should understand the interests behind such attacks.

Re:How do you think it works in the EU ?

[demonlapin]

All the B&M companies only have to figure it out once per store. I'm pretty sure Amazon can afford to do this per customer, but there are a lot of small companies that can't.

Re:Wouldn't it be wonderful,

[night_flyer]

"businesses just paid what they owed like the rest of us"

Businesses don't pay taxes, the consumer does.

Re:From the NYT article, they are following the la

[ZorbaTHut]

Nobody owes anybody anything. Some choose to donate out of their own free will. Others don't. The freely-chosen donations of one person do not, in any way, imply that another person should be required to "give" in order to "match up".

If you disagree, then, well, my mom gave me a really nice roasting pan for Christmas. To match a small part of her generosity, I'll be expecting a measuring cup set from you.

Re:How do you think it works in the EU ?

[thisnamestoolong]

Not to mention the advantage of being able to walk into the store and leave with whatever it was you were looking for -- rather than having to wait a few days and then deal with the damn UPS guy who always seems to come in the 10 minutes that you left to go pick up a few things at the store.

Part of the problem

[Alarindris]

The special laws and money reservations get is beyond stupid. I know a few native american's (another stupid term) in my area that get monthly checks for a couple grand.

Fuck. That. Shit.

I could understand the whole sovereign nation within a nation thing if they actually lived the way they did in the 17th century. But they don't. If they want free money and their own set of laws they shouldn't be able to use the technology that the white man gave them. It's not like there's any shortage of wilderness in the US either.

Laws like this only fuel racism, if we are all equal, then why the fuck do we have different laws for different races?

Sorry, /end possibly offtopic rant.

Re:Let the liberal media pay taxes for once.

[EastCoastSurfer]

Guess what else the two newspaper articles failed to make completely clear...that the 'someone' is you and me. This isn't about Amazon paying more corporate tax, but Amazon collecting sales taxes from sales to everyday people. The internet has given the average person a small but noticeable tax cut. We obviously can't have the populace spending their money how they would want to, so we have to stop this right now.

Re:How do you think it works in the EU ?

[Nutria]

There's a business for you and a CPA: create a GIS-style database, continuously updated, that determines the sales tax rates of every address in the country. License it, along with an API, to Big Internet, like NewEgg and Amazon, and as SaaS to small companies.

Re:How do you think it works in the EU ?

[Anpheus]

I think that's the bigger issue. If we set a precedent where you have to have the infrastructure to keep track of all the sales taxes in the US in order to operate an online storefront, we'll end up killing all but the biggest players.

Re:From the NYT article, they are following the la

[stdarg]

Rich men trying to give their hard earned money to the government? Blasphemy.

He favors an estate tax, which would force others to pay. It's not about trying to give his own money to the government. He has said he plans to give his money to charity, so the estate tax has no impact on him.

How do you think Buffett feels about taxes that actually affect him? Hmm well check out this article if you're curious: http://online.wsj.com/article/SB125729682025626851.html

If you really hold that the general principle that "Nobody owes anybody anything" is valid, then I suppose "sharing" is delusional and childish, "sacrifice for others" is delayed gratification, "charity" a clever misdirection or an attempt at ego agggrandisement, and "community service" is an atonement for misplaced guilt.

Again those are all voluntary actions. Don't you think that's an important distinction from compulsory taxes?

Re:How do you think it works in the EU ?

[Dun Malg]

How do you map the last few branches of the tree, when tax rates do not map to anything less complicated than the lat/lon coordinates corresponding to the delivery address? Are counties/cities going to provide that insane GIS data set?

Smugly focusing on the data structure rather than the real problem, which is the selection process shows how poorly you understand the problem.

Re:The dangers of stupid taxes

[Anonymous Coward]

I agree with you on the first point, I would liken a state/local municipality trying to get sales taxes from a non local business to someone putting a toll booth on a road they don't own or maintain and demanding money from every one that passes by. That business doesn't use any local resources, any damage done to the roads by shipping vehicles is paid for by the shipping company in the form of vehicle registrations, gas tax, property tax, and business tax (well, except for USPS I believe). Even the business itself pays plenty of taxes, Property tax, business tax, Employee taxes; at their business location. To say that they "cheat taxes" is disingenuous to say the least.

On the second point, while I will agree that some municipality's definitely do gouge their citizens, there are at least a few that are pretty fiscally responsible (well, for the most part). I think the highest paid individual in our county gets around $45,000, the average being around $35,000 to $39,000. I was proud of our county (In southerly Michigan) when instead of trying to hike taxes all county government departments were asked to cut their budgets (~5.25%). I believe all but one did it too, the police department complained theirs down to about 2-2.5%, of an over 8 Million budget for a county of only ~95,000 including several sizable cities they don't patrol.

Disclaimer, I'm a county employee.

Re:Amazon UK manages it

[amorsen]

Ouch, changing taxes within the state can be a problem (but then Amazon UK has to handle the Channel Islands which probably presents similar problems). Varying tax on different items is very common across Europe. Generally luxury goods are taxed higher, and it can be somewhat amusing to compare which countries consider which items to be luxuries. Well perhaps I'm just easily amused.