Amazon.com cuts California sales tax deal in stunning turnabout
mercurynews.com
mercurynews.com
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.
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.
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.
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.
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.
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.
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 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.
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.
I think your idea of a unified sales tax database/system is spot on.
This is serious nightmare ... but much less so for a company of Amazon.com's scale than a potentially dangerous to it upstart.
(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).)
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.
Without endorsing the product, here is one vendor's product page: http://onesource.thomsonreuters.com/solutions/indirect-tax/s...
http://onesource.thomsonreuters.com/solutions/indirect-tax/s...
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]
[1] http://onesource.thomsonreuters.com/share/solutions/41686/br...
Everyone else selling online in CA with similar areas (Zappos, Barnes and Noble, etc) still needs to pay the tax this year.
As Amazon owns Zappos, I would have assumed that they'd be covered by such a deal as well.
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.
[1] http://www.internetretailer.com/2011/01/27/amazon-sales-and-...
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.
Obviously, though, as you say you can pay nothing without suffering any consequences.
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.
It's startling to me that you assume that people who pay use-tax for goods purchased online would be hard to find.
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.
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.
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.
The legislation, which affects affiliates, would be repealed under the deal as it stood this morning. At this time I don't know if that stuck.
Using this instead http://news.google.com/news/story?ncl=dZ6jw2rLSA2UmxMxmSxu9F...
I guess this is the critical line:
If Amazon cannot get a change in federal tax policy by next June
it will start collecting the tax in September 2012.
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.
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?
> 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.
2. Canada has provincial sales tax and a national sales tax, so the overall sales tax is still 'state-by-state.'
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.
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.)