Why Amazon.com Supports the Online Sales Tax

For years, Amazon.com opposed collecting state sales tax on sales to states where they did not have a physical presence.  This is the law.  In 1992, the Supreme Court ruled that a business needed to have a physical presence in a state to be forced to collect state sales tax.

Now, Congress is ready to pass the Marketplace Fairness Act that would require online retailers with internet sales greater than $500,000 to charge consumers sales tax. Remember, sales tax neither adds nor subtracts anything from a company’s sales or profits, as it is a pass-through.  The company simply collects it and then remits it to the state.

 So, why would Amazon.com want to give up a competitive advantage they and all other online retailers presently have over traditional brick-and-mortar stores?  The simple answer is they do not see brick-and-mortar stores as their competition anymore – they see smaller, start-up online retailers as their main competition.

Amazon.com has the systems in place, whereby collecting and remitting state sales tax will not be a burden.  It will be a killer for smaller and start-up online retailers, though.  A recent PriceWaterhouseCoopers study found sales tax compliance costs small retailers 13.47% of all sales tax collected, compared to 2.17% for large retailers.  Amazon.com’s cost would be negligible, as their systems are already in place.

Sales tax compliance is not easy.  In many states such as California, in addition to state sales tax, businesses are also required to collect city sales tax, county sales tax, district sales taxes, etc.  Often, the total rate is not unique to zip code, but to individual addresses and the rates change quarterly.

The tech community should be aggressively opposing this bill.

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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

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