Amazon Sellers Brood as States Come Calling for Taxes
nytimes.com
nytimes.com
Let's say you use Amazon Fulfilment (FBA):
1. Does just storing goods in a state establish tax nexus in that state? Most states claim it does, but it hasn't been tested in court.
2. Assuming it does, Amazon keeps moving your goods between warehouses - how do you keep track which states do you have nexus in and need to have a business license in?
3. Assuming you figured it out, in some places you need to register per county, not per state (I believe it was 10+ registrations in one state, can't remember which). With all the locations with Amazon warehouses you're looking at 25+ licences. Possibly 40+.
4. Let's say you're willing to handle the 40+ business licences you're supposedly required to hold, you have to file 40+ tax returns with different deadlines, make 40 payments and keep track of law changes. Also you have to pay to get a business license and often you have to pay to keep it active every year.
5. Add being a foreign seller (let's say Canadian):
- out of all the states with Amazon warehouses only 2 will accept a non-us business address when registering for a business license. The others either don't allow you to select a country, require you to select a US state or only accept The One True Zipcode Format.
- taxes you remit using ACH will also routinely explode due to a non-US address on your US bank account.
- sure, you can file a paper registration (usually at 3+ times the registration fee), unless the state only accepts a XFA PDF form that generates a scannable code. One DOR representative told me the only way I'm getting a licence in that case is if I show up in person.
- government issued photo id is sometimes required. Guess which government often is the only one that exists ;-)
By comparison in EU you collect VAT per destination country, remit it to your local tax office indicating where it should go and forget about the whole thing.
As such, I think the much more common approach is to ignore even the clear local requirements until there is a demonstrated downside to doing so. Proactively worrying about compliance on the edge cases where no one is currently losing expensive losing lawsuits is viewed as somewhere between insane and suicidal.
Are you perhaps from a more traditional country (or part of the US) where obeying the law still has a strong moral component?
Otherwise? Screw it, I'll just do the best I can with either a scattered brain and handful of receipts, or a few hours of a desultory tax attorney's time.
If you want better, make the rules simpler. I don't have the money or time to deal with this byzantine bullshit properly, and the tax collectors not going to convince me that it's worth my time to do proactively with any argument short of a gun.
In the former, you make legal financial decisions that minimize your tax burden, in the latter, you illegally hide your wealth. It's not always black and white, but the distinction is important.
http://www.nouse.co.uk/2013/01/22/what-is-the-difference-bet...
Generally speaking all prices listed are GST inclusive at least for consumers and store fronts. You pay what the price sticker says.
Where it breaks down for us is that GST revenue is split on a determined percentage per state that is unrelated to where it’s collected. There is some sense to that but it also causes problems as there is a strong imbalance which is argued about.
On a related note we do have a 5% payroll tax on all salaries in businesses paying over some figure I think $2m/year. This apparently goes to the relevant state and is one of our little inconsistencies left compared to what is on the whole quite a good federally administered system by one agency. One tax return. One tax rate.
Not to mention that competition lowers taxes for sure.
That's because it's cheaper to settle than to be compliant as a result of prosecutors willing to settle for a fraction of what would otherwise be due, but avoiding a long trial.
If government is not involved businesses often settle for more than would otherwise be due, to avoid a long and costly trial. Curious..
Anyway, in most civilised world the opposite is true. Non-compliance can be VERY costly.
Going back to your question: I've run my first businesses in EU and I still have EU mindset. I'd rather have the piece of mind knowing that I'm compliant.
And as much as it's going to sound weird in the light of Apple tax "optimisation" I can afford to pay my taxes, even if I don't live in US and don't benefit from them in any way and know most of them are going to be wasted.
That's likely true, although I think the dominant factor is probably the laxity of enforcement. That is, even if the penalties far exceeded the cost of compliance, if your chances of being caught are small enough, the economics (if not the morality) favor noncompliance. There is also the problem that attempting to be compliant can call attention to your noncompliance, thus perversely increasing that chances that you will be penalized.
Anyway, in most civilised world the opposite is true. Non-compliance can be VERY costly.
In my mind what is worse about the current US system is that once one accepts the existence of contradictory regulatory regimes combined with lax selective enforcement, most of leverage that would keep the system sane is lost. If the penalties are severe and regularly enforced, there is a much stronger feedback to make full compliance efficient, or at least possible.
I'd rather have the piece of mind knowing that I'm compliant.
While it may provide peace of mind, realize that there is almost no way to know all the rules, and you are almost definitely noncompliant with regard to some of those you do not know. There are likely agencies that believe they have jurisdiction over you that you've never even heard of.
In my case of running a vegan frozen dessert business in California, while my research had revealed that the California Dairy Board reserved the right to regulate non-dairy frozen desserts (under the theory that a consumer might be confused into thinking that they were a dairy product) I was surprised when the federal Food and Drug Administration found me noncompliant for failing to properly register under the theory that since we had purchased some of our ingredients from another state (cocoa powder) we were engaged in interstate commerce and thus subject to their regulatory burden. While we ended up not paying any fines, and while the agents involved were polite and respectful, there were several painful days wasted on record searches and interviews with all of our key employees.
Well that's the problem, in my opinion. I tend to try very hard to ensure I'm compliant: I read contracts before signing them, etc. Increasingly I have no idea if I'm compliant because the contents of contracts and laws seem arbitrary and vague to me, and you have to be the person who will decide or be the lawyer who works with them to have any sense of if you're compliant or not. There's no 1 checklist you can go to to make sure you're complying with laws from multiple branches of multiple layers of government.
This REALLY depends on the level of law. Local rules? Maybe. State or federal laws? Playing with fire. Case in point: Lyft, Uber et al versus Zenefits.
Disclaimer: I am not a lawyer. This is not legal advice. Do not break laws.
However, the actors (States) aren't exactly operating in a reasonable way. What I speculate is the case is that people who you can obligate to pay taxes and yet cannot vote on those taxes make the best targets. Taxation without representation has been a sore spot for quite a long time :-).
The key here is the business license. By requiring it, the State, County, and City all get a bite at the Apple and can add their own level of tithe to the requirements. Whether it is that you meet their ADA requirements, their street address requirements, or their officer disclosure requirements, all things to generate revenue from "business" which when that business is out of state become exceptionally burdensome.
Again, the only solution I can see is a Federal law that can supercede any local law when the subject party is not a resident in the same jurisdiction. But they states will lobby very hard against that happening.
Amazon could setup a big warehouse complex in South Dakota or something and avoid this problem — but they want to benefit from local distribution.
Why on earth should selling goods from Oregon in Seattle not be subject to Washington sales tax, but selling goods from Seattle to Seattle be subject to it? This punishes local businesses, and encourages tax arbitrage.
As far as I see it, if you sell to residents of Washington, you have a presence in Washington.
The local nexus concept is that once you have a presence in the state, you’re obliged to follow the laws of that state.
I live in New York. If I ship FBA inventory to my agent (Amazon) in a California warehouse, California wants me to follow their law. Makes sense, and is easily avoided by not using Amazon FBA.
Amazon plays it both ways. They get to avoid collecting sales tax by claiming to be just a fulfillment house, but they market in such a way that it is difficult to buy from them. In the process of making that argument, they push that legal liability to the smaller entities who use their site. Amazon is the asshole here.
The Supreme Court disagrees.
The buyer still owes use tax if their state requires it. But the out-of-state seller with no nexus in the state has no obligation to collect that tax or provide information under most circumstances to the state in which the purchase was made.
You're supposed to pay "use tax" for things you buy from outside of your tax jurisdiction and didn't pay sales tax on. That's absolutely everything, technically.
For my state you're supposed to report all your out of state purchases on your income tax return.
The reason is because a given jurisdiction has no power to tax a business in another jurisdiction. They can tax you though,you are in their jurisdiction.
Do you really want to have trade wars between Washington and Oregon? Oregon tariff/taxes the fuck out of software and Washington responds by tariffing the fuck out of whatever Oregon makes a lot of? (probably weird shit, I've been to Portland once).
Some merchants bury that cost in the sales price, but generally speaking it’s a seperate line item that is treated differently. Merchants comingle those funds at their peril.
Edit: I think you are confusing it with income tax. What you are saying happens for salaried income in USA.
If you weren't required to collect sales tax, it is actually the customer who is on the hook to remit it. Of course, there's often no way to enforce this.
>Edit: I think you are confusing it with income tax. What you are saying happens for salaried income in USA.
Sort of but not really. Employers collect an estimated income tax liability based on your salary and what you've put on your W-4. The individual is still responsible for paying the right taxes and may be subject to penalties and having to make future quarterly tax payments if those withholdings are too low.
ADDED: The difference is the the government (in general) knows your taxable income and it's up to you to make the appropriate payments. In the case of sales tax/use tax, the government (thankfully) doesn't have the detailed and personal information to determine liability at the individual level so they have sellers do the up-front collection as much as possible.
If you spend a significant amount of money on something like a car that requires registration or regularly buy other goods in high dollar quantities in Delaware or New Hampshire that you enjoy at home in Pennsylvania, New York, Massachusetts, the tax man will notice and eventually show up to collect.
That said, it is a common misunderstanding, and it is made more so by companies that advertise "and we'll pay the sales tax!" They are always paying the sales tax, just most times they pass that cost along to the consumer.
While you are technically correct that this is how "sales tax" works, it's worth keeping in mind that in most states "sales tax" is mirrored by "use tax", and that these two "mutually exclusively" apply to the same purchases.
That is, if the seller is subject to the laws of a state they are generally required to obtain a "seller's permit" and to pay the sales tax, and are liable if this tax is not paid. But if a resident of that state purchases from someone who is not under that jurisdiction, the buyer then legally required to pay the same amount as a "use tax", and assumes the same liability. For California, see Question 1 here on "What is the difference between sales tax and use tax?": https://www.boe.ca.gov/sutax/faqtaxrate.htm#1
Which leads me to ask: for those of you in this thread saying "sales tax is not a buying tax", are you aware of the existence of this "use tax" and making a subtle semantic point that accidentally encourages illegal behavior, or are you unaware that of the interplay between the two? If previously unaware (and assuming you've ever purchased an item in a situation where sales tax was not charged), are you likely to change your behavior and self-report, or do plan to knowingly continue to engage in tax fraud?
(For the record, I do not self-report, although I do feel guilt about it.)
For non-American readers: this is why the USA declared independence from Britain.
They fought unsuccessfully to resist their own tax obligations, and pushed liability for tax, counterfeit product, and other issues to an army of third parties. They get to benefit by pushing phoney “third party sales” that they fulfill to avoid customers paying tax.
Knowing if you have to collect those taxes, remitting them according to 50 sets of rules, often contradictory.. is a whole different story
The rules are always changing too.
To clear yourself of this nexus requirement for CA you would need to have had no stock stored there for a 6 month period.
Obviously whether Amazon internally transporting one unit of your stock to CA for a few days constitutes a "substantial presence" is an untested legal question.
For me the issue isn't even about having to charge the consumer tax as a marketplace seller that uses FBA. It's the logistical overhead of registering, tracking, and paying sales tax 40+ different ways 4x per year. This essentially makes it impossible for smaller sellers to compete.
a) States really really hate that part of the Constitution, and verdict in Quill Corp. v. North Dakota, which led to the inability of states to collect tax across state lines. Up to the point of passings laws that directly contradict that Supreme Court verdict. So you're going to get sued, it's just a matter of how long it takes to make its way through the courts. b) They piss off enough states, the state governments complain to their Senators and Representatives, and suddenly we have an arm of the IRS federally given the power to collect state sales tax. Which means the IRS gets to know everything you bought online.
Amazon agreed to collect taxes to mollify the states, so they wouldn't start the above two options. It's a giant company, so it can take the hit of compliance. It also puts them at a competitive advantage over smaller retailers. Their margin is Amazon's opportunity after all!
If they get forced, I suspect Amazon might even get into the business of determining sales tax required for third parties, on that county by county basis. Make it an API, price it by the lookup, more business for them. Call it Compliance as a Service (CaaS).
In terms of what they sell themselves, they were well on their way to having a presence in every state anyway between warehouses, Amazon locker, etc. So they pretty much rolled on something that was going to be a moot point in a few years anyway.
Add any unpaid sales & use amounts to the income tax bill.
They do. At least in most states buyers are supposed to pay use taxes on purchases.
>some central agency
Sorry, but that's an absolutely awful idea. I do NOT want all my purchases reported to some federal agency.
- Have sellers collect tax as if they had nexus in every state in US - it's horrible with thousands of different rates, but at least it's a solved problem. Removes Amazon advantage of shipping across state lines to avoid sales tax.
- Have sellers file a single tax return with a per-state breakdown.
1. Let the federal government establish a uniform national sales tax and outlaw all state and local sales taxes.
2. Even better, eliminate sales taxes entirely. Replace it with higher income taxes or property taxes. Yes, yes, I know, regressive, not progressive, taxing consumption is better, but there's something to be said about an economy without crazy levels of bureaucracy and regulations.
3. Just keep fighting off the states until they accept that Internet orders should be non-taxable. The Internet has completely changed the business models of music delivery, porn, and newspapers. No reason it can't eventually convince states to back off on sales taxes.
It turns out that reports from all the same reporting entities that report to the IRS now are nearly sufficient to implement such a scheme, most of the data is there, it just might have to be reformated, perhaps some bits and pieces added to the report.
You can exempt consmption below some amount, say a reasonable amount of money to feed, cloth, and house your family, and provide basic transportation. Then you can have a progressive tax rate applied to consumption above that. Rich people are not going to stop buying yachts, fancy cars, linen suits, and avocado toast. The net effect on the economy should be good overall.
Usually when someone says "consumption taxes are regressive": a) they only imagine collecting the tax point-of-sale, and b) they don't imagine a consumption tax with a variable rate. But in reality, a progressive consumption tax is a simple matter of tweaking the current reports sent to the IRS by employers and financial entities for the income tax computation, and then applying different arithemetic.
[1] https://en.wikipedia.org/wiki/National_Maximum_Speed_Law#Ena...
Moreover, that mechanism is precisely the mechanism by which the Federal government convinces states to enact federal policies: by dangling federal monies in exchange for the enactment of state laws.
Same BS as making the uniform drinking age of 21 years.
The feds raise taxes in every state to pay for something, then extort those same states to dance to the federal tune in order to get back some of the money taken from their citizens to build roads that would benefit them. If the Feds didn't take that money, the state could have taken it to build their own roads.
It would be great if the federal power could not transfer funds to the states without using apportionment solely by criteria that cannot be gamed politically. Divide-and-conquer is not a tactic that should be countenanced within a federation of supposed equals.
I think Real ID is the latest round of the same way of strong-arming the states, by denying to non-compliant states a benefit that will be enjoyed by compliant states.
There possibly comes a point when the stick becomes so big and so disconnected from the behavior being forced that an amenable Supreme Court rules it's an end run around the constitution.
I've seen proposals (in EU countries at least) to do the opposite: eliminate personal income tax in favour of VAT/Sales tax - removes the burden of filling (and more importantly processing) personal income tax returns, removes 99% of all entities that could be subject to tax audits and so on.
Property tax works against poor people being able to own property or keep property they own.
This is why elderly people who may own their homes free and clear can still be forced out of them when they retire or become disabled.
For an example tax of 2%, the property could sustain the liens for decades, allowing the owner to keep control of the land, even if they're unable to pay the taxes owed. The revenue to the government could be provided by bonds backed by those liens. Maybe require some portion of the tax to be paid in cash, and some penalty rate on the liens, to encourage payment of taxes by those that can afford them?
Are you really poor if you own valuable assets?
Aside from that, someone who owns valuable fixed property free and clear should be able to find a lender who can open a small mortgage against the property to cover taxes.
If you became poor, then maybe you should sell the property to gain more liquidity, balance your portfolio, and transfer the property to someone with enough income to fully maintain it.
For example, in Minnesota groceries are tax-free but ready-to-eat prepared food is not. If I buy a pizza from Papa John's it gets taxed, if I buy a bake-it-yourself pizza from Papa Murphy's it doesn't.
It may make Amazon of lot of money, but it has become increasingly frustrating to try to buy products through Amazon. Get thousands of hits on a search. Mostly the same crap through a thousand dropshippers. Used to shop through Amazon because it was consistent and easy. Now it's like shopping on Ebay.
I wrote this is a comment last week:
>Several years ago I sold a memory card via FBA. The buyer returned the card, they said they were returning it because of a defect, they said "card slows down significantly after it gets half full." Amazon's wearhouse receives the return, they mark it as sellable, and then sell it (as new) again!! Clearly its not new, the problem was evident only from using it!...If the return reason is "defective," why would mark as sellable ever be possible?
It hasn't been an option for USB-C cables though.
https://www.engadget.com/2016/06/23/amazon-faa-fine-dangerou...
>Last week, the FAA announced a $350,000 fine for Amazon after the retailer mishandled chemical shipments that resulted in injuries to UPS workers. Today, the agency hit the company with two more fines totaling $130,000 for similar incidents. In 2014, Amazon shipped separate packages, corrosive rust remover and a flammable gas used to clean air conditioners without properly labeling the boxes or sending along the required paperwork. Failure to do so violates the FAA's hazardous materials guidelines. The box containing Rid O' Rust Stain Preventer Acid leaked through, but there were no injuries reported
http://thehill.com/policy/technology/314077-faa-proposes-910...
>The Federal Aviation Administration (FAA) is proposing fining Amazon $91,000 for potentially violating hazardous material regulations.
>Amazon allegedly attempted to ship undeclared hazardous materials on FedEx air transportation in May of last year, the FAA said in a Thursday release.
>The chemicals in question were more than two gallons of toxic clear diesel fuel and tank cleaner. Workers at a FedEx facility in Sioux Falls, S.D., found the shipment leaking.
>The fine would not be Amazon's first wrist slap by the agency. The FAA has levied 22 civil penalties totaling over $1.4 million against the company since 2013.
I'm not the GP but I don't shop at Amazon very often, maybe once or twice a year only.
I have used Newegg, Walmart.com, Target.com jet.com, chewy.com, eBay (for some items), drugstore.com, Kohl's.com, Bestbuy.com and cowboom(RIP), overstock.com, toysrus.com, Rakuten, b and h photo, TigerDirect. Plus ordered direct from manufacturer on some stuff (Columbia jacket, Pyrex.)
Thats what I can think of off the top of my head.
My information is also not shared with some random seller with terrible security.
Amazon also needs to ban manufactures and sellers that offer review bribes.
Using amazon.com exclusively made Amazon work for me again. I would cancel my account if it was only third party sellers.
Take some comfort in knowing that no customer data is shared with third-party sellers.
All the hassles and searching would be worth it if the prices on amazon weren't so horrible. Especially their scammy amazon pantry. Household items like paper towels and laundry detergent are sometimes 2X or more what I'd get in my local supermarket on a sale.
Prices are terrible on amazon but at least amzn's stock price has skyrocketed.
I also feel like taxes are something that deserves to be in a the transaction handling layers rather than the buyer/seller layers. Of course this would drive people to cryptocurrency, but imagine if taxes were just added to your credit card bill based on its billing zipcode and merchants didn't have to think about it at all. I mean for all kinds of reasons it's not feasible, but it seems like the least pain point to deal with transaction taxes is at the transaction.
That would be great, for customers. You can have your billing zipcode anywhere you want, regardless of where you might technically live or buy things.
It's complicated because Amazon isn't the one who owes the state taxes -- it's the marketplace sellers. This is a different situation from the previous cases of "nexus" which determines state taxes that Amazon itself owes. That nexus case was resolved and Amazon has been paying its own state taxes for many years now.
In other words, Amazon already pays all sales taxes for items that say "Ships from and sold by Amazon.com." Amazon does not file sales taxes for items such as "Sold by RareOldBooks and Fulfilled by Amazon."
Even if Amazon added a "sales tax" line item for 3rd-party marketplace sellers, it's still up to those marketplace entities to properly file their state tax forms and declare Amazon sales revenue. The state regulators know that Amazon can't file on their behalf but they'd at least like some "help" from Amazon by way of audited reports so they know which marketplace sellers to pursue.
In contrast, Ebay does have the ability for sellers to add sales tax for bidders when they check out. However, it's optional. Ebay doesn't actually collect the sales tax money for sellers. In other words, Ebay is just providing a sales tax "calculator" rather than acting as a sales tax "collector". Paypal also doesn't collect and pay sales tax on behalf of sellers.
See https://www.ecommercechris.com/south-carolina-amazon-collect...,
https://www.ecommercechris.com/amazon-sales-tax-amnesty-need...
https://www.sellerlabs.com/blog/sales-tax-amnesty-what-do-i-...
Right, South Carolina in particular wants to change the "seller of record" from the marketplace sellers to Amazon itself. Most of the other states are targeting the marketplace sellers and they want more of Amazon's help in that. (E.g. add explicity sales tax line items like Ebay and provide audit reports to help identify sales tax evaders.)
Sales tax regimes were all worked out in a time when most sales were local, brick and mortar. The world has changed drastically since then - it's time for tax laws to catch up a little too.
For even a small seller, you're maybe looking at thousands of dollars a year for that much paperwork. So you'd have to have hundreds of thousands a year in revenue for that to make sense.
* Do you impose tax in the state where the seller resides?
* Do you impose tax in the state where the buyer resides?
* Do you impose tax in the state where the item is warehoused?
The only wrinkle is that #2 is not very well enforced when a company doesn't have a presence in the buyer's state, but it's still technically required.
So number 2 should probably not be about where the buyer resides, but where the buyer ships the product.
If I am a resident of New Hampshire, and my wife buys me a sandwich online that I eat in California, why would California be cheated out of their tax?
Buyers then prefer sellers who collect taxes for them. This forces Amazon and other marketplaces to collect the tax.
The law already requires this in aggregate (use tax from the buyer of sales tax wasn’t paid). Very similar to how you can only claim dependents if your provide their social security number. Great way to bring entities into tax payment compliance.
If people and Amazon paid their damn taxes, we wouldn’t even be discussing this.
There are thousands of sales tax jurisdictions in the US, between states, counties, and cities. There is no way you, as a little guy, can manage all that.
It's not though. If I live in California and have a presence only in California and ship a widget to Pennsylvania, I'm under no requirement, as a matter of constitutional law, to collect PA state sales tax on that purchase. What the buyer states, on their own state tax forms, is their own business.
This specific case, about sellers affiliated with Amazon but not part of Amazon, is ultimately for Amazon, its affiliates, and the states to resolve. There isn't a role for an independent startup. The same would apply to present or future networks of sellers in the same vein.
Attempting to justify tax evasion with constitutional law is unacceptable.
Personally, I'll be sure to vote against any representative who advocates for databases of online purchases or anything in that vein.
(1) Sort of. NH, for example, does have a relatively high tax on meals eaten in restaurants.
https://www.law.cornell.edu/supct/html/91-0194.ZO.html
Amazon got pressured to collect in some states by those states considering Associates and other programs to constitute a nexus.
Note that in most (all?) states [that have a sales tax] the buyers supposedly have to pay sales/use taxes anyway. The debate is whether Amazon has to collect those taxes on behalf of the state.
They are too weak to enforce their laws. Their decision making process comes down to enforcing its tax regime and possibly losing all the commerce when the big company just moves away - increasing their irrelevancy and underfunding - or not bringing it up at all.
Only a select few governments, national governments, and multinational governments are relevant enough to coax corporations into compliance.
And even then, they are just trying, as the entire framework of their government's existence can be successfully challenged by the corporation's lawyers.
This will be a nightmare to fix, especially for the small sellers. Taxes based on where the seller is, taxes based on where the buyer is, taxes based on where the warehouse is, etc. Plus accounting and declaring profits government.
http://www.nationalreview.com/article/439532/us-postal-servi...
Correction, it should be "collecting sales tax". The one charging state sales tax is the state, they want Amazon to collect it on their behalf.
Now, it is the seller's responsibility when the sellers don't even live or ship from that state?
Personally become a big fan of AliExpress. It's a much better experience than buying a 3rd party item on Amazon. Although, only if you're flexible on shipping times.
1) Businesses are responsible to collect tax at point of payment.
2) Sales tax is paid at the rate of, and to the state where-ever the item is delivered to/or picked-up by purchaser.