I am really disappointed to hear this news, actually. I would rather Amazon have fought the state's clear attempt to unconstitutionally tax interstate commerce and gotten clear precedent that forcing companies without a physical presence in a state to collect sales tax there is bullshit.
It's the same reason why I do not believe in 'use tax'. It is a tax which exists solely to tax interstate commerce (which is exclusively the domain of the Federal government) that I am stunned nobody has attempted to fight yet.
The argument that "Amazon gets an unfair advantage abloobloo" is garbage -- Amazon has to pay a local company to ultimately get the items to you, which absolutely does pay local tax - UPS has to buy gas in California, pay employees in California (and pay the associated exorbitant California payroll tax), pay for inspections, facilities, etc... The state is collecting their pound of flesh out of the transaction in one way or another.
(Not to mention the complexities of the tax code that aren't even consistent on a ZIP code basis - it's the last weekend of August, you're shipping to an address covered by the HRT district in Virginia Beach, VA, and you're selling a $105 bikini. For $500, what's the tax rate? Hint: all of those factors (date, exact location down to the house number, price, item type) play into how much the tax rate is. It is not a naive lookup table of "zip code: tax rate".)
If you consume more than about 1,000 gal/month, you'll buy your gas from a "cardlock" gas station. The station typically has no attendent and no services other than a gas pump, and requires minimum monthly purchases.
If you consume more than 50,000 gal/month at a single fleet depot, you'll get a tank and buy the gas by the truckload - the equivalent of what an independent gas station does.
If gasoline consumption is a large enough fraction of your total spending, and you're big enough, you'll buy gasoline futures directly from the folks who peddle in them; or buy it directly from the refineries. You'll have this gasoline delivered to the tanks at your depot.
If you need to use a third party's tanks, you'll deliver it directly to their tanks. For example the FBO (gas station) at my local air port refuels four Sky West/United flights a day, in addition to the occasional private jet and lots of 100LL to the general aviation crowd. If they put jet fuel in your Citation X, you need to give them a bunch of money, some of which they use to buy more jet fuel. When they put jet fuel in a SkyWest plane, SkyWest delivers more jet fuel to them and pays a nominal fee for their storage and pumping services.
Federal Hours of Service rules limit the UPS drivers to 11 hours of driving a day. If you assume a UPS truck gets 8 miles/gal and averages 45 mph, then a 75 gallon tank is enough for all day, and they would only need to refuel at the depot.
Some of the taxes you pay on gasoline and diesel are meant to be public road use taxes. If you're not burning the gas by driving on a public road, they don't need to be paid. You can apply for a rebate based on how much you burnt off-road (for example, you have a logging truck that burns 10% of its gas on private logging roads). If you have an engine that you use exclusively off-road (such as in farm equipment), you can buy whats called pink diesel or dyed diesel. You don't have to pay the public road use taxes on pink diesel, but it stains your engine. The engine of a vehicle used on public roads can be inspected to see if its ever burned pink diesel, and if it has, you get in trouble.
I'm unsure of what Amazon's long term plan is. Is it their hope that Congress deals with this on a national level and makes it workable? They just don't want to deal with the mess on a state by state basis?
They want to deal on an even playing field with other online retailers. They don't want to have to collect tax in a state that their competitors do not. A nationwide solution would make them happy.
Ah, but for a company as big and established as Amazon it will be anything but an even field. One reason they're all for this is that it would hinder upstarts the might threaten them.
I'm guessing for California they'll lobby to extend it for another year, and another year, etc...
Nationally, I'm not sure Congress can force non-taxation on the sates, I think that's a constitutional issue. I think Amazon's plan there is just to use their market dominance and hope the states fold.
Or maybe just buy them enough time to close up operations in an orderly fashion and leave California. I'm not sure if Amazon has a physical presence in the state but if they have a distribution plant or other company owned assets this will give them time to relocate. I believe Amazon had already notified their affiliates that they were terminating the relationship when the law was passed (similar to what they do when other states passed nexus provisions).
Somewhat unlikely. Amazon has a number of wholly-owned subsidiaries in California with sizable technical staffs: A9 (search; Palo Alto), A2Z (mobile/media product development; 5 California offices), Alexa (analytics; San Francisco), and probably others. There's also a Northern California EC2 Region. That's a very strong 'nexus' that would cost them a lot (in money and talent) to uproot.
I suspect Amazon sees the way things are going and (as in other states) have tried to get what forbearance they can while they can, and also expect a national harmonization of cross-state sales taxes at some point.
You've just cited a bunch of companies that are separate entities owned by Amazon. US courts have a very strong presumption against attributing the acts, economic or otherwise, of a corporation to its owners.
It would be virtually impossible for California to win in court on the grounds of A9, A2Z, Alexa, or Amazon AWS having offices in California. None of those companies are involved in Amazon.com's separate retail business.
Most individual states would disagree, especially when the wholly-owned subsidiary exists primarily to avoid taxes.
If Amazon's technique was legally unassailable, they wouldn't be paying sales tax even in the 5 states where they already do. They'd just assign whatever creates 'nexus' in those states to new 'non-selling' subsidiaries.
Piercing the corporate veil becomes easier the more closely integrated the companies and their management structure are.
Amazon can maintain arms-length relations with most of their subsidiaries because those subsidiaries are not part of Amazon's core business, and can operate semi-independently with little to no loss in efficiency.
Maintaining such a relationship with subsidiaries directly involved in the day-to-day operations of Amazon's retail business (maintaining stock, setting prices, making sales, packing and shipping product, etc.) would be much more difficult, costly, and risky.
Company A buys software from company B to carry on its business. Company B does not become liable for the acts of Company A.
A9 and A2Z are providing software and/or services to Amazon.com which Amazon.com uses in its retail business. This is completely different from A9 and A2Z engaging in that business. They do not buy, sell, distribute, or ship the products Amazon.com does.
So long as Amazon.com maintains arms-length dealings with A9 and A2Z (which is trivially easy for any company with semi-competent legal counsel to accomplish), the ownership of A9 and A2Z is irrelevant to Amazon.com's dealings with California.
Not really, no. As far as I can tell, they all provide products or services in some for to end users outside Amazon.com's retail business.
Not that it matters. The principles are well-enshrined in the common law system, codified and uncodified. You may think it's ridiculous, but the courts take it seriously.
It's not even non-taxation. It's the fact that no two states with sales taxes have the same rates (which can also vary by locality), rules about what it applies to, or filing mechanism.
Amazon and everyone else involved in ecommerce would be a lot happier if there were a unified system/database for dealing with sales taxes in the US. Rates and rules wouldn't necessarily have to be the same, but there at least has to be one system with unified categorization of products and a unified filing mechanism which can be automatically queried, and as long as the merchants use that system in good faith, they would need to be immune to any sort of lawsuit or prosecution for not meeting the actual legal requirements of any particular state/locality.
Amazon ran Target's online store for years, and collected locality-appropriate sales tax on those orders. It's not as hard as some people make it out to be.
Target has a physical presence in many locations, so they already have the tax data for those locations. If they just calculate the taxes based on the rate at the nearest Target location (which is what would happen if you went to the physical store and bought something), then it would be easy. If they have to calculate the tax based on the address of the recipient, the problem becomes insanely difficult.
The varying rates aren't a problem, for certain; Amazon deals with those just fine in various localities (Canada has approximately 10 different rates; I don't think that cities are allowed to put additional sales taxes, as that's reserved to the federal government and the provinces/territories). What's problematic for Amazon (IMO) is the wildly varying applicability rules and filing mechanisms.
I think your idea of a unified sales tax database/system is spot on.
In my home town of only 50K (before the tornado, it's Joplin, MO) there are sections of the town with their own additional sales tax, the theory is to improve that particular business district or to pay for the city's contributions to it (e.g. intersection upgrades). On thing I'm noticing as I work with receipts for my insurance claim is that of the three Wal-Marts in two cities we did and now shop at (the one we used to exclusively go to was destroyed and is rebuilding) each has two different sales tax rates (don't forget that rates also depend on what is being bought, e.g. food of certain types is taxed less). And then there is the statewide state sales tax holiday for certain back to school supplied in late August....
This is serious nightmare ... but much less so for a company of Amazon.com's scale than a potentially dangerous to it upstart.
I forgot to add: my current temporary location is in an unincorporated part of the county, although part of the plot of land is in a 3rd city. What sales tax rate should be assigned to me for mail orders? For fairness (if you believe in doing this at all, which I don't), it ought to be the business district where I do the most shopping (the one that at the moment has precious few functioning businesses since most were totaled if not totally destroyed).
(Note that I don't agree with charging sales tax on mail order purchases; the mail order companies do not benefit from taxes except, say, though that maintain public order, and that's party captured by the delivery companies they use which do pay local taxes (except for, I assume, the USPS, but that's another issue).)
Amazon has 33k employees [1], estimated; they can figure it out. Also, I'm positive there's at least one company selling such information -- thousands of other retailers, most much smaller and much less technically sophisticated than Amazon, still manage to make it happen. This is an idiotic excuse.
Actually, I'm pretty sure you're wrong about companies selling this information. Smaller retailers manage to avoid this hassle by... not having to pay sales tax for out-of-state purchases.
That might be whats behind Amazon's change of heart. This will be difficult for them, but its probably impossible for smaller retailers. It might be expensive in the short term, but it protects them from competition in the long run.
I think GP was suggesting that there is at least one company selling software that will allow you to compute sales tax on an order, not that companies are selling their order book to states for the purpose of use tax enforcement.
Yes, Amazon does. But if it applies to Amazon then it will apply to all the other smaller internet retailers as well. The historical precedent was that it creates an undue burden on said retailers who have to collect such a tax. It's not an excuse, it's a Supreme Court ruling.
So your solution to the problem of there being hundreds of thousands of potential tax rates for every single item is to require everyone selling anything online to pay Thomson Reuters for a subscription to their database?
Or one of their competitors, yes. Or figure it out themselves. Thousands of retailers from JC Penny to Sears to B&N, etc etc, figure it out. Also, you'll note that all online business already do this for the state in which they're located (with the exception of states that don't charge sales tax, but those are relatively few), so businesses can clearly do it. 50 states instead of one is a minor matter of scale, and is no more complex than figuring this out for one state. Which they already must.
Also, if Reuters has excessive profits, someone will probably make a competitor. That said, it's basically a solved problem, except when companies want to hand wring their way out of paying taxes.
BTW, don't be ridiculous about "hundreds of thousands". Unless you mean thousands. Even TR in their sales literature only mentions 13k tax authorities [1]
From another point of view: what if you're not Amazon and doing online retail in California? Amazon now has a one-year price advantage. Is it enough to disrupt market share in that state?
Amazon is not currently collecting sales tax in California, so there's no change until Sept. 2012, when it will start collecting sales tax in CA (assuming this goes through.) It's business as usual until then.
Everyone selling things online in California is supposed to be collecting sales tax as of July 1st. This delay until September 2012 applies only to Amazon.
Everyone else selling online in CA with similar areas (Zappos, Barnes and Noble, etc) still needs to pay the tax this year.
We'll have elections in November 2012. They might be planning to buy off enough politicians with campaign donations to get a more permanent measure passed before September.
> While Democrats and Gov. Jerry Brown fretted that they would lose $200 million a year in sales taxes
California residents are supposed to pay use tax on internet purchases regardless of the physical presence of the retailer, right?
Running the math: the $200 million/year loss that they claim is an estimate on tax fraud on just Amazon purchases? At a 7.25% tax rate, that's a tax on $2.7 billion in sales, and Amazon's US sales last year were 18.7 billion [1]. They're estimating that unreported purchases in California comprise 14% of Amazon's revenue in the US.
California comprises about 12% of the US population. The assumption is invalid, because 14% is greater than 12% - but, assuming it's reasonably close, we can still say that either (1) the politicians are ignoring the use tax or (2) there is a massive amount of fraud going on in use tax reporting.
The rate of buying products online isn't going to be the same in every state, and it's reasonable that it would be slightly higher in CA than in other states.
And on use-tax: have anyone ever met someone who paid use-tax on goods purchased from Amazon? Most consumers don't even know they're supposed to, and audit enforcement is expensive and therefore uncommon.
I did. I think it's reasonably clear in the state tax forms that you're supposed to pay use tax, and the clean conscience was worth the $13 or whatever it was.
Obviously, though, as you say you can pay nothing without suffering any consequences.
$13 isn't a lot to pay. However, if it takes an hour to save and itemize out of state invoices, in order to pay taxes on them, I'm going to guess that's less than you make per hour, so the entire exercise represents a net loss (other than the benefit to your conscience).
Many people spend way more on out-of-state purchases, so their sales tax bill would be in the hundreds or thousands of dollars. There's real incentive not to pay, unless you're itemizing those purchases as deductions on your income tax or unless you're making the purchases as an incorporated entity.
People get audited on their income taxes all the time. Businesses get audited. I have never heard of an individual getting audited for failure to pay state use tax on out-of-state purchases when they didn't declare those purchases on any official forms.
A few states don't even have income tax; in those states there are no state tax forms that the average citizen ever encounters.
Even with 100% honest taxpayers, the use tax still puts local business at a disadvantage, due to the time value of money. I'd much rather pay later, with "worth less" dollars, than pay now.
I paid tax on my online purchases (though I don't live in California). There's a line on your form where you're supposed to declare this stuff, I paid some $60 and have a clean conscience and clear legal record.
It's startling to me that you assume that people who pay use-tax for goods purchased online would be hard to find.
1) California's GDP is $1.9 trillion, 13% of the $15 trillion US GDP (this is more accurate in comparing consumption than population). Factoring in California's likely higher rates of online retail purchases, 14% is quite plausible.
2) There is massive fraud with use tax reporting.
http://lakeconews.com/content/view/21075/928/
$10.4 million in use tax payments were made in 2009, which would work out to be about $100 million in revenues taxed. With Amazon alone is selling $2.7 billion in CA, of which the vast majority is for out-of-state purchases that don't have sales tax. It's entirely plausible that over 95% of out of state sales are not being taxed. I'd even hypothesize that most of the use tax payments actually made are for trackable items (cars).
2a) The whole reason politicians want out of state companies to collect tax is because of the massive fraud.
The $2.7 billion number which I used was extrapolated from the $200 million in lost taxes.
You're right, I should have used GDP, rather than population. I would have guessed that use tax fraud was common, but not "less than 1 percent of Californians currently report use tax" common. From your linked article:
> Board Member Betty T. Yee said ... "the low rate of consumer compliance overall points to the need to pursue multiple efforts to promote use tax compliance so that all retail purchases – from both online and store front retailers – are treated on an equal basis."
Right. Promoting citizen compliance, possibly through audits, penalties, and emphasis on income tax forms is what needs to happen here. Instead of trying to persuade their citizens to obey the law, California is trying to force Amazon to do it for them.
The assumption doesn't have to be invalid. California citizens may be wealthier than those other states and spend more money on Amazon goods. California may also have more computer users with decent internet access than, say, Wyoming.
California punches well above its weight when it comes to consumption expenditures. I wouldn't be surprised if a quarter of Amazon's purchases originated here. We Californians are a spendy bunch.
> California comprises about 12% of the US population. The assumption is invalid, because 14% is greater than 12%
I'm not sure that it's that far fetched that a tech oriented culture like California would buy on average more goods from Amazon then other areas of the US.
Just because the percent of Amazon's revenue from California is greater than the proportional population of California relative to the US doesn't make it invalid. You need a purchase distribution function to make that claim.
The law doesn't single out Amazon, the $200 million is from all internet retailers that have any sort of presence in California. The core of the new law was defining residents participating in affiliate programs as a physical presence. Assuming nearly all retailers have some sort of affiliate program with a CA resident, the $200 million figure is how much uncollected tax revenue is available across all online retailers.
Whoops: The post was way too long initially, and "The assumption" referenced a statement that I subsequently deleted when I tried to trim it down. It went something like "assuming that online purchases are evenly distributed across the population", and wasn't intended to be correct - Just a first-order approximation.
Very good! I can start shopping Amazon again with a clear conscience.
I say this not as sarcasm but as literal truth. I know many HN'ers disagree that they were doing anything wrong -- but personally, their behavior turned my stomach and I was avoiding buying anything from them which I could easily get elsewhere.
Sure, but doing so is practically harder even than itemizing your taxes. It's not like you can just PayPal the money over right when you make the purchase.
Sure. But that doesn't change the fact that Amazon tried to weasel out of charging the same sales tax as every other retailer who sells books in California; that they were going to try and get legally guaranteed special treatment by promoting a state referendum (as other corporations have also done); and that they abruptly screwed over their 10,000 affiliates in the state.
There are plenty of retailers who sell books to California residents without collecting sales tax. (And the other way around--I, in Washington, have bought books from California retailers who did not collect Washington sales tax).
Just FYI: in Europe, Amazon collects VAT at the buyers' local rate. For example, when shipping books from the UK (which has zero VAT on books), the bill includes VAT at the destination country's rate.
While most like the trumpet the enumerated protections of the Constitution that the US enjoys, this is (IMHO) an example of where the wording and the intent of the Constitution is outdated.
Most developed nations have some for of consumption/sales tax. In the EU it's typically 17.5-25%, in Australia it's 10%, in Switzerland it's ~7% and so on. America has this on a state by state basis.
Nowadays the split jurisdiction with interstate commerce is now awkward and unwieldy. I believe that in the coming years the Federal government will act to enforce an interstate sales tax and maybe even a tax on imports. The path of least resistance here is for the sales tax due to be the sales tax that applies in the state of the recipient.
I'm not sure how much revenue that would raise but my guess is a lot.
As for Amazon, I'm not sure what they're thinking. In a year they'll have the same problem. One would think they're confident of Federal action in the next year on online sales taxes or they think the climate will have changed in a year. I'm not convinced of either. Are they that desperate that a year's delay is a win for them?
While we're at it, what's up with New York? Amazon collects sales tax for the state of New York while it (thus far unsuccessfully) has tried to challenge the "Amazon tax" in the courts. Is New York a test case? Are the affiliates in New York that much more valuable?
This is a classic case of "who moved my cheese." Sales tax used to make sense -- but it's trivial to avoid with the advent of e-commerce. Instead of struggling to preserve the small e-commerce portion of this small revenue stream (California is looking for $200 million in revenue from Amazon a year while the state budget is over $100 billion) the states should find other sources of revenue or cut spending.
> Most developed nations have some for of
> consumption/sales tax. In the EU it's typically
> 17.5-25%, in Australia it's 10%, in Switzerland it's
> ~7% and so on. America has this on a state by state
> basis.
1. It's nice in that I live in Oregon and there is no sales tax. :P
2. Canada has provincial sales tax and a national sales tax, so the overall sales tax is still 'state-by-state.'
>1. It's nice in that I live in Oregon and there is no sales tax. :P
Have you looked at your paycheck and see how much they take out on state income tax?
I spent half a year working in Oregon then another half in CA and when I got my first paycheck in CA after 6 months in Oregon I thought there was a mistake with payroll because we are talking about a few hundred more a paycheck for 2 weeks of work. The difference being state tax level between OR and CA.
So in CA I have a couple thousand more in cash to spend (or invest in savings roth ira/401k etc) as compared to making the same salary in Oregon.
I've found that my paycheck goes a lot farther since I moved to Oregon. Oregon has (nearly) a flat income tax at 9%, while California has a progressive income tax topping out around 9.5%. The CA income tax advantage shrinks as you make more money.
On the other hand, if you don't make a lot of money, then you probably have a lower savings rate. If your savings rate is low, then a large portion of your income is subject to the 7-9% sales tax.
It'd be interesting to draw a surface map. On the two horizontal axis put income and savings rate, and make the height the difference between the total effective California tax and Oregon tax. I'd do this now, but I need to sleep instead.
Additionally, one should compare CA's Prop 13 with OR's Measure 47. Both limit the rate at which a houses assessed value can grow, but Prop 13 allows for discontinuities of assessed value when a house is bought, while Measure 47 doesn't. As a result, new home owners in OR pay much lower property taxes than new home owners in CA. (By new home owner, I mean someone who newly owns a house, not someone who owns a new house. Measure 47 favors old houses.)
It may not be directly related to that, but I don't mind it that much. I like the fact that when I look at the price for something I don't have to add in the sales tax. I sort of like the one-or-the-other approach in Oregon (only income tax, no sales tax) and Washington (only sales tax, no income tax). There are obviously nuances (e.g. Multnomah County has a ~15% tax on car rentals) though.
It's the same reason why I do not believe in 'use tax'. It is a tax which exists solely to tax interstate commerce (which is exclusively the domain of the Federal government) that I am stunned nobody has attempted to fight yet.
The argument that "Amazon gets an unfair advantage abloobloo" is garbage -- Amazon has to pay a local company to ultimately get the items to you, which absolutely does pay local tax - UPS has to buy gas in California, pay employees in California (and pay the associated exorbitant California payroll tax), pay for inspections, facilities, etc... The state is collecting their pound of flesh out of the transaction in one way or another.
(Not to mention the complexities of the tax code that aren't even consistent on a ZIP code basis - it's the last weekend of August, you're shipping to an address covered by the HRT district in Virginia Beach, VA, and you're selling a $105 bikini. For $500, what's the tax rate? Hint: all of those factors (date, exact location down to the house number, price, item type) play into how much the tax rate is. It is not a naive lookup table of "zip code: tax rate".)