Taxing Amazon: Good for Virginia and Good for Me

By :: April 3rd, 2012

I’ve finally finished my income tax returns for 2011. The last task—and least pleasant—is figuring my Virginia use tax. That’s the sales tax I owe on our many out-of-state web purchases. It’s a pain to plow through 12 months of receipts to identify untaxed transactions but I do it every year, stubbornly—some say foolishly—insisting on paying what I owe.

But in a couple of years, Amazon will ease my task when it starts collecting Virginia sales tax on things I buy. I can hardly wait.

All 45 states that impose sales taxes also have use taxes that apply to all taxable purchases on which buyers paid no sales tax. Relatively few taxpayers know about use taxes, much less pay them, and most states exert little effort to collect them.

Nearly half of taxing states include a section on their income tax returns where filers can pay use tax. In those states, less than 2 percent of taxpayers ante up, at least in part because paying requires figuring out how much you owe. Nine states simplify the process by providing look-up tables of acceptable amounts based on income. About 3 percent of filers in those states pay the tax, compared with about half a percent of those in other states that collect the levy on income tax returns (which includes Virginia). States with separate collection mechanisms undoubtedly see even less compliance. And most states don’t seem to try very hard to make consumers pay.

States have worried for years about losing revenues as retail sales have moved from in-state bricks-and-mortar stores to on-line firms that rarely collect state sales taxes. The Supreme Court ruled a few decades back that a state cannot force sellers to collect sales tax unless the seller has a commercial presence in the state. That ruling effectively exempts many e-tailers from having to collect sales tax.

But states have recently tried to force some big sellers like Amazon to charge state and local taxes with mixed success. Some, like New York, enact “Amazon laws” that assert that companies with in-state affiliates must collect sales tax, even if the companies themselves have no physical presence in the state. That worked for New York and a few other states: Amazon currently collects sales tax on purchasers who live in Kansas, Kentucky, New York, North Dakota, or Washington (where Amazon’s headquarters give it physical presence).

But the tactic failed elsewhere. Amazon pulled its affiliates in Arkansas, Connecticut, Illinois, Rhode Island, and Texas after those states enacted Amazon laws.

At least five states have cut deals with Amazon, deferring required tax collection in exchange for not legislating such a requirement. For example, Amazon will start collecting tax on sales to Virginians starting in September 2013. California, Indiana, South Carolina, and Texas will join that list over the next two years.

Congress could short circuit this piecemeal process and require e-tailers to collect state and local sales taxes, as Howard Gleckman noted last fall. The Streamlined Sales and Use Tax Agreement (SSUTA), onto which at least 24 states have signed, simplifies sales tax rules in order to make it easier for out-of-state sellers to collect sales taxes on sales to non-residents. The Main Street Fairness Act, introduced last year in Congress, would authorize states to implement SSUTA with restrictions. But congressional efforts have gone nowhere so far.

Since most of my untaxed on-line purchases are from Amazon, the company’s agreement with Virginia will cut my use tax calculations substantially—for my 2014 tax return. In the meantime, I can only hope that Congress will give states authority to require all e-tailers to collect the sales taxes we are all supposed to pay.

15Comments

  1. Michael Bindner  ::  1:53 pm on April 3rd, 2012:

    I admire your honesty. Most taxpayers don’t pay the use tax because it is so inconvenient. It will take congressional action to sort this all out.

  2. J  ::  7:00 pm on April 3rd, 2012:

    Yes, we can only hope Congress helps states impose a regressive tax.

  3. Claudio  ::  9:07 am on April 4th, 2012:

    lol.. you are the only person in america who pays that tax. The tax man must giggle when he gets your return and shouts to the office.. we got one!. do you send an extra check with some extra money in too just to help with the deficit?

    in all seriousness though, taxing online purchases is equivalent to a double tax as customers are still on the hook for shipping. No one would bother to shop online when you get your item for less, immediatly, locally. It would be the mainstreet advantage act, shipping already makes it fair. The law has been the way it is in regards to catalog sales and then internet sales for basically ever.

  4. David Campbell  ::  10:20 am on April 4th, 2012:

    The California Board of Equalization says that less than four-tenths of one percent (yes .004%) of California residents actually report and remit use taxes annually. They also estimate the result of this non-compliance will cost the state at least $1.7 Billion for FYE 2011. I think Congress is going to act this year, due to the severe budgetary urgency in most states. The most promising of the bills is S.1832, the Marketplace Fairness Act.

    The Marketplace Fairness Act grants states the authority to compel online and catalog retailers (“remote sellers”), no matter where they are located, to collect sales tax at the time of a transaction – exactly like local retailers are already required to do. However, there is a caveat: States are only granted this authority after they have simplified their sales tax laws.

    More information about the MFA is available at http://marketplacefairness.org/

  5. bill  ::  6:21 pm on April 4th, 2012:

    for a small retailer, the paperwork would be miserable. There are about 3000 counties, how many cities, and does the school district tax or not. How am I supposed to know what goes on in Kansas. I have enough problems with the 17 counties in my state. I assume that there would some simplification of all the various rates. I can see problems. I live close to the CA/NV state line, and for some portions of California, you need to get you mail in Nevada. Would you pay NV taxes on goods delivered to NV, when you are a CA resident? (you can’t get there from the rest of California). But then, there is no perfect system.

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  7. Daisy M. Jenkins  ::  2:59 pm on September 1st, 2012:

    Amazon.com and all the greedy states can all shove it! I won’t be purchasing a thing on Ancestry.com anymore. My money isn’t going to the government now that we are being unfairly taxed for Odumbocare.

  8. dan  ::  7:49 am on April 23rd, 2013:

    I do not find the argument that “Most taxpayers don’t pay the use tax because it is so inconvenient” to be compelling enough to extend the police powers of states beyond their borders for tax collection. The taxpayers who do not pay the use taxes are committing a crime within the borders of their home state that each state has ample authority and jurisdiction to remedy. The states’ unwillingness to enforce or simplify their own laws against their own residents should not be license to burden out-of-state companies whom fall outside the boundaries of the state.

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