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Amazon feud with states over sales tax turning ugly

states demand amazon collect sales taxThe tentacles of Amazon are long, and many states that are suffering tax income shortfalls are itching to squeeze some money out of their state residents' online purchases from the behemoth. The problem isn't with the law, most of the time, but with the collection, and Amazon is caught between the desire to maintain its present structure and the desire to keep this price advantage. A bill under consideration in Connecticut that would require Amazon to collect sales tax on purchases by that state's residents has the company threatening to drop Connecticut partners from its site.

What's the issue here? The most common Amazon transaction, where you buy an item from its inventory, is pretty straight-forward. Amazon collects sales tax from buyers in those states where it has a physical presence: Kentucky, North Dakota, and Washington, as well as New York.
However, there less straight-forward transactions: What about:
  • The Amazon Associates program? How it works: anyone owning a web page can add links to Amazon products. Say, on my personal Web site, I write a nice review of Tobias Buckell's book "Tides From the New Worlds". You click on the link next to my post, which sends you to Amazon, where you buy a copy of the book. Amazon spiffs me 15% of the sale price. Around 200,000 people currently take part in this program. However, if I live in Iowa, and you live in Iowa, shouldn't I be collecting sales tax for that purchase?
  • The Amazon Marketplace? I have a gizmo to sell, so I put it up for sale on Amazon, much like I would on eBay but without the auction option. Amazon acts as the middleman; when you buy my gizmo through Amazon, the company sends me the money (minus its cut) and has me ship the gizmo directly to you. But if you live in Idaho and I live in Idaho, I should be collecting sales tax and sending it in to the state, right?
You can see already that this issue is way complicated.

The problem is not the federal law. The Internet Tax Freedom Act keeps states and local governments from discriminatory taxation, but does not stop those governments from imposing the same sales tax it would on brick and mortar stores. The problem is collection. States have not found a way to get residents to voluntarily pay sales tax on Internet sales, or for sellers to voluntarily collect it, so they want to put that burden on Amazon.

Amazon, understandably, doesn't want to get into a situation where it has to know the state and city sales tax rates for Natchez, Miss., and every other taxing entity in the country, nor do the bookwork necessary to cut checks monthly checks for each.

However, governments love taxes like bears love honey, so more and more legislatures are debating the issue, egged on by local merchants.

The issue isn't going to go away, much as Amazon might wish it would. Looking at the shape our town and state budgets are in, I can only expect unrelenting pressure to impose tax collection on sites like Amazon.

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