Amazon Cases in NC and TX Put Spotlight on Sales Tax Fairness

Following a recent federal court decision and steps taken by the Texas Department of Revenue to collect sales tax that it contends is due from Amazon.com, a number of editorials have been published decrying Amazon’s refusal to collect sales tax. In a September 30 quarterly filing with the SEC, Amazon reported that the State of Texas had hit Amazon.com with a bill of $269 million in uncollected sales taxes [1], and on October 25 a federal judge in Seattle ruled that a North Carolina Department of Revenue request for customer data in an effort to assess Amazon.com’s tax liability needed to be narrowed [2].

Though Amazon won its challenge to the North Carolina information request on the grounds that it violated customers’ right to privacy, several editorials in support of sales tax fairness have noted that U.S. District Judge Marsha Pechman said in her ruling it “does not prohibit the [Department of Revenue] from issuing a new request for information” with only general product information. The North Carolina Department of Revenue had sought information from Amazon.com as part of an investigation into Amazon.com’s tax liability.

“A huge part of our campaign for sales tax fairness has been education – whether it’s with legislators, editors, or consumers,” said ABA CEO Oren Teicher. “Independent booksellers and our retailing partners in the sales tax fairness campaign have been very good at making their case for sales tax equity. Considering this, I don’t think it’s any coincidence that, in the past year, the number of articles, editorials, and op-eds published in support of sales tax fairness has increased dramatically. While this success may not be as easily discernable as a legislative victory would be, it is nonetheless hugely important. This is a significant and remarkable turnaround from just one or two years ago and shows that booksellers’ efforts are clearly making a difference on many different fronts.”

On Thursday, October 28, in the Retail Reality Check blog posting “Amazon Plans to Mess With Texas: Why It’s a Losing Battle [3]” on BNET (CBS’ interactive business network), business reporter Carol Tice wrote about Amazon.com’s plans to fight the Texas sales tax assessment.

Noting that Amazon has said that it plans to fight Texas in court, Tice wrote that she believes the company does not appear to have much of a case and stressed: “Amazon can continue fighting this change wave one state at a time, or it could take the high road, and just start collecting the tax. Maybe Texas would settle for receiving tax going forward, getting Amazon out of its back-tax mess.

“Bricks-and-mortar retailers have been screaming for this change for years. It’s flat-out unfair to them that online retailers don’t charge sales tax. When e-commerce was a tiny thing, nobody cared. But it’s massive now and only getting bigger all the time. The online sales-tax issue won’t be going away.”

In the op-ed “Amazon Bad News Behind Mask of State Win [4],” published by Store Front Back Talk on October 28, Frank Hayes postulates that in the North Carolina Department of Revenue case Amazon.com may have won the battle, but that it will inevitably lose the sales tax fairness war.

“Technically, Amazon won a legal victory; the court said it was unconstitutional for the North Carolina Department of Revenue to demand names and addresses and details about books, movies, and music that customers bought from Amazon,” Hayes wrote. “But the judge also said the state could have exactly what it needs to calculate sales taxes: who bought things and how much they cost.

“Amazon has dressed up that court ruling as a big victory for customer privacy. But now Amazon will have to cough up the customer data, and North Carolina will begin to go after Amazon’s North Carolina customers to collect the taxes due—and you can bet that the revenuers will mention Amazon’s name when the tax bills go out. Amazon is already collecting sales taxes in five states where it has physical operations. Therefore, a few more court victories like this one, and Amazon might be better off just collecting all state sales taxes itself.”

On Friday, October 29, in the Salon.com op-ed “Time for online commerce to stop dodging sales tax [5],” Dan Gillmor, director of the Knight Center for Digital Media Entrepreneurship [6] at Arizona State University’s Walter Cronkite School of Journalism & Mass Communication [7], noted that the Texas sales tax assessment on Amazon.com has put a spotlight on the issue of sales tax inequity.

Wrote Gillmor: “The [Texas] case points to one of the least-fair elements of our tax system: the free ride on sales taxes for people who buy via out-of-state mail-order or online merchants.”

“This free ride isn’t just unfair to Main Street merchants,” Gillmor said. “It further starves state governments that are already in their worst fiscal situations in decades. And its end is way overdue. (I should note that I own a small amount of Amazon stock, so ending the free ride would almost certainly be bad for my pocketbook in more than one way. But fair is fair.)”