Should Amazon Be Required to Collect Sales Tax?

The battle between online mail order companies like Amazon, and states that wish to collect sales tax on every order, has been in contention for many years. The current law only requires the collection of a state sales tax if the company has a physical presence in a state, e.g., employees or physical company building[s]. In states where Amazon has a distribution center, the states contend these physical locations meet their definition of nexus. Amazon contends that the fulfillment centers used to ship goods to consumers are subsidiaries and do not constitute a physical presence.

In 2002 I took a college public speaking class to sharpen my skills, since I was in a position to teach computer related classes at our local junior college. One of the speeches I decided on was this exact same issue about taxation by states of Internet mail order companies. During the last ten years little has changed in what the states believe are a physical presence and what online retailers claim is an actual physical presence.

In my research for the speech I made, there were two issues I presented. First you have 50 states with a multitude of different counties, parishes, etc., that have different tax structures. Trying to collect taxes would be an accountant’s nightmare. The second problem is that many of the online retailers are mom and pop operations without the resources to collect state taxes. Imposing such a burden could effectively put smaller online businesses out of business.

In order to effectively have a tax system that would be equitable to all states, every state would have to agree to a single tax rate. This would require Congress to establish a federal mandate that every state would then need to agree with. Such a Congressional and state agreement is highly unlikely due to the political climate that exists between the ruling political parties.

In the meantime, Amazon is threatening states where its fulfillment centers are located with closing the distribution centers if the states insist on collecting taxes. This in turn would increase unemployment in those states where Amazon currently distributes online orders.

To me this seems like a lose-lose for both Amazon needing to relocate facilities and for the states in which job losses could occur.

Comments welcome.

Article Written by

I have been writing for LockerGnome since relocating to Missouri seven years ago, where I continue to be a technology enthusiast who enjoys playing with the newest and latest gadgets.

  • D Lowrey

    The problem with the states is that tax collection is not an even playing field. My reasoning is that the states are more than happy to throw your tax dollars to corporate welfare with tax breaks the companies are not required to repay if they decide to move or close up shop in the area. If these states would better spend taxes on items for the public good…rather than enriching companies…I would be more than willing to have them collect sales tax. Not being able to enrich these companies with tax breaks and provide for the public good…the state representatives will choose their bribes (sorry campaign contributions) over reasonable fiscal management.

  • Ric Shanahan

    They should not collect sales tax. Period

  • http://pulse.yahoo.com/_ZFKH6DVMSDZLHDVJY3E4JTM7SQ DavidS

    Wrong!! Amazon and Ebay should provide the tools to allow for the colection of sales taxes

  • Josh Roesslein

    I would like it to be optional for me to choose if sales tax is included at checkout. The reason is my state (and others) have an “use tax” that you are suppose to pay for these “online” orders when you file your taxes for the year. You must tally up the totals and from that calculate how much you owe back to the state. I would much prefer being able to just pay the tax upfront when checking out so I don’t have to worry about this come tax season.

  • Dave Sanders

    Get rid of all income taxes across the board. Get rid of all sales taxes at the state and local level. Instead levy a single, flat rate, consumption tax at whatever percentage makes sense for our budget. Dismantle the IRS entirely.

    Then yes, tax online sales like any other sale. The tax calculation would be very easy and Amazon would just send all of its taxes to a single place.

  • kevin sexton

    which would be illegal. Even if the tax is not charge on a transaction, you are legally obligated to pay it at the time you pay your income taxes through the use tax. If you were audited, and the auditor found evidence of internet purchases without tax paid, and no use tax paid, you would then be subject to penalties.