Amazon Sales Take a Hit in States With Online Tax

[Midpack]

I'm about to make a $700 purchase and I think I will go for the local shop instead of a big box store or online merchant. There's a place for online merchants, big box stores and local merchants, but it seems only fair that online merchants compete with brick-n-mortar stores on an equal footing which includes state taxes and shipping. I'm surprised that it's taken this long to even begin to address the issues with most states facing deficits, many with troublesome future pension liabilities. YMMV

Amazon Sales Take a Hit in States With Online Tax - Bloomberg

In one of the first efforts to quantify the impact of states accruing more tax revenue from Web purchases, researchers at Ohio State University published a paper this month that found sales dropped for Amazon when the online charge was introduced. In states that have the tax, households reduced their spending on Amazon by about 10 percent compared to those in states that don’t have the levy. For online purchases of more than $300, sales fell by 24 percent, according to the report titled “The Amazon Tax.”

“There is no ambiguity,” Brian Baugh, one of the report’s authors from Ohio State’s Fisher College of Business, said in an interview yesterday. “It has been their competitive advantage.”

Amazon supports federal legislation that would explicitly let states require tax collections by all online retailers above a certain size.

In addition to quantifying the sales impact, the researchers also concluded that brick-and-mortar stores didn’t hugely benefit from households reducing their spending on Amazon. That’s because many shoppers simply turned to online alternatives.

In total, brick-and-mortar retailers enjoyed a 2 percent bump in purchases in states that introduced an online sales tax, while competing online retailers got a 20 percent increase, the study found.

 

[JoeWras]

Maybe I'm just a goody two shoes, but I always pay the use tax in my state on my tax for Amazon purchases of the past. Well, I estimate it, maybe a bit to my favor.

In any case, it isn't affecting my choice but I know that I'm apparently not normal.

 

[Midpack]

Maybe I'm just a goody two shoes, but I always pay the use tax in my state on my tax for Amazon purchases of the past. Well, I estimate it, maybe a bit to my favor.

In any case, it isn't affecting my choice but I know that I'm apparently not normal.

Evidently your fellow citizens have largely chosen another path re: use taxes...

Forty-five states have a use tax. About 1.6 percent of the taxpayers in those 45 states actually pay the use tax.

Most People Are Supposed To Pay This Tax. Almost Nobody Actually Pays It. : Planet Money : NPR

 

[Gus.]

I have been paying my state's use tax for the last few years. Since most of my purchases are from Amazon I won't pay as much use tax as I used to.

 

[ERD50]

... but it seems only fair that online merchants compete with brick-n-mortar stores on an equal footing which includes state taxes and shipping. ...

I'm not sure I agree that it is 'fair' to demand that on on-line business collect local sales tax.

The on-line place does not need my local fire and police protection, for example. And the shipping companies do have local presence and those companies are paying local property taxes, local licence and other fees that a local business pays, as are their employees. And the on-line places are paying property taxes and other taxes in their own locality.

Why should my state collect sales tax because I had something shipped here? The only resources I used in this state were the shippers, and as I said, they pay local taxes.

Now, if the state that the company resides in, or ships from, wants to claim that sales taxes are due in that state, I could see that. What's the difference in a sale made to another state? If someone from a state with no sales tax drives over into IL and buys something, I don't think we waive the IL/local sales tax for them. So why waive it if a company ships out-of-state? Seems inconsistent to me.

Of course, they'd locate in states with no/low sales tax, but that's something any of us can do.

-ERD50

 

[JoeWras]

1.6% pay use tax? Holy cow! I am not normal.

 

[ERD50]

BTW, here's how IL now handles it...

Line 23 - Use tax on internet, mail order, or other out-of-state purchases from UT Worksheet or UT Table in the instructions. Do not leave blank. ______

It was ~ $50 for me, from the tables IIRC, so that would be ~ $1000 of online purchases. I probably did more than that (though some are buying for others and being reimbursed), so I didn't bother to run any alternate calculations.

I've never bothered to pay it before, I just figured it was too much work to add up all my on-line receipts, some of which do have tax collected. Let them audit me if they want. But this year I noticed the "Do No Leave Blank", and figured it would trigger an automatic paper-audit, so I just went with it. Maybe I'll calculate it for this year as I go, just to see.

-ERD50

 

[Midpack]

I'm not sure I agree that it is 'fair' to demand that on on-line business collect local sales tax.

The on-line place does not need my local fire and police protection, for example. And the shipping companies do have local presence and those companies are paying local property taxes, local licence and other fees that a local business pays, as are their employees. And the on-line places are paying property taxes and other taxes in their own locality.

Why should my state collect sales tax because I had something shipped here? The only resources I used in this state were the shippers, and as I said, they pay local taxes.

Now, if the state that the company resides in, or ships from, wants to claim that sales taxes are due in that state, I could see that. What's the difference in a sale made to another state? If someone from a state with no sales tax drives over into IL and buys something, I don't think we waive the IL/local sales tax for them. So why waive it if a company ships out-of-state? Seems inconsistent to me.

Of course, they'd locate in states with no/low sales tax, but that's something any of us can do.

-ERD50

As you can see from the excerpt of mine you chose to quote, I said state, not local.

How would you propose the states recover the lost revenue from state sales taxes? Obviously it's not straightforward or it would have been addressed by now.

According to a University of Tennessee study and the National Conference of State Legislatures, total remote sales tax losses by the states are estimated to have been $23.26 billion nationwide for 2012, with $11.39 billion of those losses coming from electronic sales.

The Tax Foundation recently reported that states rely on sales and use taxes for 22.5 percent of their state and local tax collections.

Sales Tax Slice: How Much Revenue Do States (Really) Lose From Remote Sales? | Bloomberg BNA

And now that some major retailers are paying taxes for online sales in states they operate as brick-n-mortar (even though the sales are online), and Amazon is paying in several states, the little guys (and 98.4% of their online customers) should be able to enjoy a competitive advantage by skirting state taxes?

 

[Chuckanut]

I want low or no taxes. I also want plenty of government services. The first thing I would like is a nice four lane highway from my home to the seashore - downhill both ways. Then we can talk about taxing my internet purchases from out of state.

Seriously, the big problem with taxing internet sales is the one the small business has. Large corporations like Target or Amazon or Walmart can handle the tax issues with computer programs. But, often these laws do not scale down very fairly to the smaller businesses, thus putting them at a competitive disadvantage to the big boys and big girls.

Already we see the big outfits doing things like putting in distribution centers (jobs!!) into states that treat them favorably. Really, what is the difference between the State of Confusion letting Amazon tax sales in exchange for a big distribution center, and the State of Shock giving Megacorp many billions of dollars in tax breaks to to build a massive factory in the state?

IMHO, the real problem is that the playing field in this area may get so tilted towards the Big Boys thus cutting out the little guy whose costs to meet these laws don't scale down far enough to match the revenue. We need a fair system that does not favor any one group. I think that is called free enterprise capitalism.

 

[robnplunder]

I'm not sure I agree that it is 'fair' to demand that on on-line business collect local sales tax.

The on-line place does not need my local fire and police protection, for example. And the shipping companies do have local presence and those companies are paying local property taxes, local licence and other fees that a local business pays, as are their employees. And the on-line places are paying property taxes and other taxes in their own locality.

Why should my state collect sales tax because I had something shipped here? The only resources I used in this state were the shippers, and as I said, they pay local taxes.

Now, if the state that the company resides in, or ships from, wants to claim that sales taxes are due in that state, I could see that. What's the difference in a sale made to another state? If someone from a state with no sales tax drives over into IL and buys something, I don't think we waive the IL/local sales tax for them. So why waive it if a company ships out-of-state? Seems inconsistent to me.

Of course, they'd locate in states with no/low sales tax, but that's something any of us can do.

-ERD50

+1. You got my vote on this .

( In addition to above points, the way I see it, every time I order something on line, I am helping USPS to stay afloat ).

 

[ERD50]

As you can see from the excerpt of mine you chose to quote, I said state, not local.

How would you propose the states recover the lost revenue from state sales taxes? Obviously it's not straightforward or it would have been addressed by now. ...

I didn't propose anything, I was just stating that I don't think it is a 'slam dunk' that it isn't fair, for the reasons I gave.

Fairness aside, maybe the 'solution' is to just acknowledge that the times they are a-changing. Buggy whip makers maybe thought automobiles were not 'fair', and USPS may not think email is 'fair'. Deal with it. If the state is losing revenue, they have many other means to collect revenue in other ways. And, those other ways would likely be more efficient than forcing every little small on-line retailer to be able to collect and pay sales tax for every taxing district in the US.

I mentioned local, as Chicago and some other nearby cities have a local sales tax as well. And we have some regional transportation tax, not sure if that is county-wide, or some other regulatory district. So does the on-line retailer need to collect for IL, as well as know if their buyer is within Chicago city limits, or some other jurisdiction with a sales tax charge? It's not a simple thing for a small place, maybe a business will spring up to offer that service, but they will charge and it will cost us all in extra administration.

Just raise the fee on some existing tax if needed - no added administration or complexity to that. Simple.

-ERD50

 

[meierlde]

+1. You got my vote on this .

( In addition to above points, the way I see it, every time I order something on line, I am helping USPS to stay afloat ).

Sales tax is really imposed on the purchaser not the seller, which is why it is separately stated on the reciept. Consider that when Boeing delivers a jet, it flies the jet out over international waters to avoid Wa sales tax, and the transfer officially happens there outside of Washington State. The merchant is merly acting as the agent of the state to collect this tax. (Of course the merchant has no choice in the matter but...). It has always been the case that Wal-Mart in its online business has collected salestaxes since it has stores in every state. Amazon may have figured to move to same day deliveries in big cities it needed to set up warehouses in more states, so they started paying the sales tax in Tx for example (they don't charge sales tax in NM, because not enough people live there to make same day delivery attractive from a business point of view.) Note that if you go with some alternative sellers on Amazon you may not be charged sales tax however.

 

[NW-Bound]

It's a moot point for me as Amazon has a center in town from where they fulfill their order, hence have collected sales tax for a few years. I guess the close-by warehouse is how they can do "free delivery" on 40-lb bags of cat litter and pet food.

Oh, I still have not checked to see if they carry cinder blocks and 80-lb bags of premixed mortar with free delivery.

 

[ERhoosier]

Amazon already charges sales tax in my state, so I have no dog in this specific fight. But agree that this state/local sales tax collection issue hurts the smaller on-line retailers WAY more than the big guys. Many of the big guys (WalMart, Sears, Best Buy, Amazon) are already collecting sales tax due to having local presence. There are 100's of specific state & local sales tax combinations across the US so it now basically requires hiring an outside service to stay current. That cost plus the added overhead of tracking & remitting sales tax collections to each jurisdiction can be substantial for a small firm. I know some local OLR's who may fold due to cost of compliance and the threat of persecution (not just prosecution) for inadvertent violations. I'll bet when all this settles out there won't be the huge net tax windfall state/local gov't's expect.

IMHO-gov't (inc local, state, & Feds) already get PLENTY of tax $$$$ to provide services. But waste, inefficiency, and too often outright graft/corruption means taxpayers are getting a VERY poor return on their $$$. Collecting more taxes is NOT the way to improve gov't efficiency.

 

[Chuckanut]

Sales tax is really imposed on the purchaser not the seller, which is why it is separately stated on the reciept. Consider that when Boeing delivers a jet, it flies the jet out over international waters to avoid Wa sales tax, and the transfer officially happens there outside of Washington State.

Interesting. So, if I buy a $50,000 diamond necklace for my enamorata in California, for example, and I have it transferred to me in Oregon (no state sales tax) I can avoid paying California sales tax? That could pay for a nice luxury vacation in Portland.

 

[MichaelB]

Interesting. So, if I buy a $50,000 diamond necklace for my enamorata in California, for example, and I have it transferred to me in Oregon (no state sales tax) I can avoid paying California sales tax? That could pay for a nice luxury vacation in Portland.

We could ask Dennis Kozlowsk. Some background here (snippet: he was the CEO of Tyco. tried to avoid paying sales tax on expensive purchases, got caught).

Sales tax is not a business tax, it is a tax assessed by states and municipalities on their residents. Businesses act as tax agents. Small online businesses are already exempt from collecting this because it could be a burden on them.

 

[meierlde]

Interesting. So, if I buy a $50,000 diamond necklace for my enamorata in California, for example, and I have it transferred to me in Oregon (no state sales tax) I can avoid paying California sales tax? That could pay for a nice luxury vacation in Portland.

I suspect if you called the Jewelry store and ordered it yes, if you showed up at the store no. After all on line and phone, or indeed letter ordering are all the same in this matter. Now if you live in Ca the state might go after you for use tax since 4k is enough to make it worth their while.

 

[LongPrime]

I live in OR. Son lives in WA. We get frequent packages from AMZN and visits from son.

 

[marko]

Interesting. So, if I buy a $50,000 diamond necklace for my enamorata in California, for example, and I have it transferred to me in Oregon (no state sales tax) I can avoid paying California sales tax? That could pay for a nice luxury vacation in Portland.

Here in Mass, driving 20 minutes north to no-sales-tax NH for liquor, cigs and big ticket items (TVs, furniture, jewelry etc) is a way of life. ("Hey, I'm makin' a run...need anything?")

So much so that the Mass Gov suggested putting staties on the border to make sure you paid your sales tax upon re-entry. Of course it was only a matter of time before a local TV station bagged a state rep 'shopping' up there. Hilarious!

 

[youbet]

The on-line place does not need my local fire and police protection

You seem to be confused as to who is paying the tax. The out of state on-line business (who you state correctly does not need the local services of your community) is NOT paying the local sales tax. They collect it from YOU and forward it to your state. You're paying a tax to fund local services you consume.

Lots of folks seem to get this wrong. Sales tax is not a tax on sellers, it's a tax on buyers.

 

[youbet]

Here in Mass, driving 20 minutes north to no-sales-tax NH for liquor, cigs and big ticket items (TVs, furniture, jewelry etc) is a way of life. ("Hey, I'm makin' a run...need anything?")

So much so that the Mass Gov suggested putting staties on the border to make sure you paid your sales tax upon re-entry. Of course it was only a matter of time before a local TV station bagged a state rep 'shopping' up there. Hilarious!

Here in NE Illinois, the big scheme is to cross into Indiana for cigarettes and avoid not only the higher Illinois sales tax but also the much higher Illinois excise tax added to each pack of ciggies. Heavy smokers (NOT ME!) can save $3 - $4 a day buying their cigarettes in Indiana by the case.

 

[meierlde]

You seem to be confused as to who is paying the tax. The out of state on-line business (who you state correctly does not need the local services of your community) is NOT paying the local sales tax. They collect it from YOU and forward it to your state. You're paying a tax to fund local services you consume.

Lots of folks seem to get this wrong. Sales tax is not a tax on sellers, it's a tax on buyers.

In fact this is why the sales tax is stated explicitly on the receipt. If it were a tax on the selling business you would not see it. And of course this is why the use tax exists to handle the cases where you did not utilize the seller to collect the tax on you.

 

[ERD50]

You seem to be confused as to who is paying the tax. The out of state on-line business (who you state correctly does not need the local services of your community) is NOT paying the local sales tax. They collect it from YOU and forward it to your state. You're paying a tax to fund local services you consume.

Lots of folks seem to get this wrong. Sales tax is not a tax on sellers, it's a tax on buyers.

I understand that, I'm not confused, and I still think my point holds, no? I thought maybe I was loose with my wording, but I re-read my post and I think I stated it correctly - sales tax is 'collected', property taxes/fees are 'paid'.


If I buy from a local B&M place, they collect the sales tax that I pay, and it goes into the State and local coffers to pay for local Police, Fire, among many other things. That local B&M store relies on some of the services that are paid for by those taxes.


If I buy from a place in Ohio, and if they now collect the sales tax that I pay, it goes into MY State and local coffers to pay for local Police, Fire, among many other things. That Ohio store does not rely on any of the services that are paid for by those taxes. So since they don't use those resources, I don't see why they should need to collect the tax for my locality.

Now, if they told me I have to pay (and they collect) their Ohio/local sales tax, OK, I can take the deal or leave it. But at least they don't need to know the tax laws in a zillion different taxing jurisdictions, only the ones they sell from.

To the degree that means lost revenue to IL, as I said, times change, find a different (more efficient) way to collect that lost revenue (or, if I dream, they could actually cut waste).

-ERD50

 

[samclem]

I estimate my online purchases for purposes of my state taxes. I figured that the number of people doing this was small, bit am surprised it is less than 2%.

If the states could somehow compel Amazon and other online retialers to provide individual sales data to the states (just as employers and banks report to the IRS the money they pay out), a lot of folks would probably change their tune and welcome collection of taxes by these retailers.

These sales taxes are supposed to be paid by consumers, and it's not right that inter-state sellers gain an advantage over local B&M retailers due to the collection mechanism and lack of effective enforcement. But, I'm not sure I agree that a retailer in Utah can/should be forced by New Jersey to collect taxes for the benefit of New Jersey.

 

[crtreedude]

I think one constant I see in discussions like this is often, the very same people who complain about paying tax complain about a lack of services. The two are connected.

I will agree with people who say money is wasted by the government - but I would love to have someone point to any large government where this isn't true - or any large business for that matter.

I will admit I don't pay sales taxes in the USA - since I don't live there - but if I do import something from the USA, I get hit win the tax here, and it is higher (14% is the minimum for imported goods)

Honestly, if you want to keep local shops, you have to make it a level playing field - in however you can. Taxes are a significant part of this. On-line merchants have many advantages over local, no point giving them one more.