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Posted at 9:25 AM ET, 11/22/2010

Your Amazon.com purchases should be taxed

By Ezra Klein

Good column by Farhad Manjoo on the way Amazon.com -- and other online retailers -- have a tax advantage against brick-and-mortar stores that have to pay sales tax, and also on the way Amazon and others try not to tell anybody about that tax advantage because they fear having it taken away.

But it should be taken away. When you have a tax, you want the base as broad as possible so that the rates can be as low as possible. The exception is when you're using the tax to discourage something, rather than just raise revenue. But the point of the sales tax isn't to kill off brick-and-mortar retailers and drive commerce online. It's to fund state governments. And right now, state governments are losing more than $7 billion a year because online purchases don't get taxed, and that number is going to keep growing as more and more purchases get done online, in part because they're exempt from sales taxes.

And as they say on the infomercials, that's not all! This is making an already regressive tax even more regressive. Sales taxes hit low-income residents hardest because they spend a higher percentage of their income. And online purchasing is more common among the affluent than among the cash-strapped. So you've got fewer affluent people paying sales taxes, which means more states with big holes in their budgets. And what do states do when they've got a big hole in their budget? raise the sales tax, of course. And who's left paying that increased sales tax? Lower-income consumers, mainly.

By Ezra Klein  | November 22, 2010; 9:25 AM ET
Categories:  Taxes  
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Comments

Man, I would hate, hate, hate, if online purchases were taxed. I make lots of purchases online and it would really hurt is all of them suddenly got more expensive.

Still, I'm wrong and Ezra's right. The lack on taxes online really isn't fair, nor does it make much sense from a policy standpoint. As much as I would hate paying a new tax (and I would hate it a ton!), it's the right move.

Posted by: MosBen | November 22, 2010 9:46 AM | Report abuse

Amazon's already low prices are 10.5% (here in Chicago) less than Costco's or Best Buy's due to the lack of taxes. This puts them at a huge competitive advantage. Unless I need something right away I always shop online, mainly due to the taxes.

Problem is Ezra - Online taxes are not the major tax issue in the US, and while $7Billion isn't to be sneezed at it's not going to close much of a hole.

Posted by: ChicagoIndependant | November 22, 2010 10:03 AM | Report abuse

It's true.

Posted by: harold3 | November 22, 2010 10:05 AM | Report abuse

This should be an either/or. There should be a national sales tax (say 5%) that only applies to interstate transactions like Amazon's, but not to in state purchases that are taxed at the local sales tax rate.

I.e. you either pay the national sales tax to the Federal Government, or the local sales tax to the state and in some cases locality but not both. This should specifically preempt any state attempts to collect sales tax from a company that does not have a physical presence in their jurisdiction.

This levels the playing field between brick and mortar retailers and the Internet retailers, helps address Federal revenue concerns for the Federal budget deficit, and addresses the Internet retailers concerns about having to comply with 50+ different sets of sales tax laws and regulations.

Posted by: jnc4p | November 22, 2010 10:12 AM | Report abuse

If every online retailer had to remit sales taxes to every taxing jurisdiction it would put thousands of small businesses out of business. Amazon can afford to handle all the bookeeping and paperwork, but small businesses won't be able to. Someone will now argue that it is just a matter of purchasing some simple software, blah, blah, blah, and they will have revealed themselves as someone who knows nothing about online commerce or paying taxes. Every state has different rules, procedures, and forms. There are different tax holidays, different rules for types of products, etc. etc. It is a massive problem just collecting the correct tax for one complicated state, like NY, let alone 50 states.

Posted by: AuthorEditor | November 22, 2010 10:13 AM | Report abuse

By the way Ezra, you have omitted a discussion of the "use" tax that individuals are supposed to remit to their state governments as part of their state income tax returns for any untaxed purchases they make, such as from Amazon.

http://en.wikipedia.org/wiki/Use_tax

Posted by: jnc4p | November 22, 2010 10:19 AM | Report abuse

"By the way Ezra, you have omitted a discussion of the "use" tax that individuals are supposed to remit to their state governments as part of their state income tax returns for any untaxed purchases they make, such as from Amazon."


Most liberals I know aren't honest enough to actually pay the use tax. They just like to talk about it in the abstract.

Posted by: krazen1211 | November 22, 2010 10:32 AM | Report abuse

As was pointed out, we already owe the use tax, and have for a long long time. Right there on the income tax form. Nothing new needed, I've been paying it as long as online sales have existed. Maybe we need more enforcement, if people think there is a problem with compliance? People keep writing as though these transactions were untaxed. They are taxed.

Posted by: Beige | November 22, 2010 10:37 AM | Report abuse

In the Quill v. North Dakota case, the supreme court said that the problem was the burden of collection, not the tax itself. If the states could get their act together on a simplified system, say one rate per state and a central place to remit the tax, they could collect the tax now.

As a former mayor of a village that funds a large part of police, fire, snowplowing, and everything else from our share of sales tax, I know how important this is. I remit my use tax on my state income tax form, like most other New Yorkers.

Posted by: johnlevine | November 22, 2010 10:57 AM | Report abuse

Some states are trying to educate their residents about the use tax, a tax that consumers must remit when they make online purchases from companies like Amazon that don't collect sales tax.

The Louisiana Department of Revenue, for example, distributed a press release making the point that "online" doesn't mean "tax-free." They even produced a web video promoting the consumer use tax: http://bit.ly/a4Rbb8

The problem, of course, is that most shoppers don't care, and even if they did, very few people will go to the trouble of filling out a consumer use tax form and remitting the taxes owed on their online, mail-order, and television shopping purchases.

Reminding taxpayers of this obligation is all well and good, but the real solution is simply to require online retailers to collect and remit the sales tax to state governments.

Posted by: hkanders | November 22, 2010 11:01 AM | Report abuse

I do a lot of online shopping and use amazon.com frequently not because it is tax-free but because of the great deals and the convenience. I have shopped at other stores online and it seems if they are an online presence to a brick-and-mortar store, sales tax is added to the purchase (i.e. Old Navy, Gap, Borders, Barnes & Noble, Sam's Club etc.). I think the difference is between a business that is strictly conducted as eCommerce vs. those physical/virtual stores.

Posted by: yanni1976 | November 22, 2010 11:30 AM | Report abuse

Oh Amazon is collecting tax, it is just under the guise of "shipping and handling". So unless a buyer has no state or local taxes, you really aren't saving that much money. Online purchases should be taxed, flat rate no matter in what state you live.

Posted by: ILDem | November 22, 2010 11:33 AM | Report abuse

Which state's tax should you pay? What about county and city taxes?

Fortunately I have access to a delivery address in Delaware.

Posted by: staticvars | November 22, 2010 11:40 AM | Report abuse

And who's left paying that increased sales tax? Lower-income consumers, mainly.
--------

Horse puckey. Middle class consumers as well. Besides, it's mostly middle class and lower income consumers who use Amazon and eBay because of the lower prices. Do you think the wealthy diddle over pennies? Hardly. They're tax free on many levels.

Posted by: mooncusser | November 22, 2010 11:41 AM | Report abuse

How about ending all the other sales tax loopholes and exemptions, including services? Why should I have to pay sales tax on internet purchases while TV stations don't have to pay sales tax on ad sales?

Sorry, I want MY exemption as long as other special interest groups get theirs.

Posted by: Garak | November 22, 2010 12:11 PM | Report abuse

@hkanders "The problem, of course, is that most shoppers don't care, and even if they did, very few people will go to the trouble of filling out a consumer use tax form and remitting the taxes owed on their online, mail-order, and television shopping purchases."

The other problem is a lot of shoppers don't keep records of their purchases throughout the year, and/or don't bother looking up the history in Amazon or on their credit cards.

If the government was serious about Use Tax enforcement, it would start with the equivalent of a 1099, W2 or the various investment income statements that are sent to taxpayers at tax time, with a copy being sent to the various state tax departments based on the shipping address.

I submit my previous solution of a single national sales tax for all sales that aren't otherwise taxed by a state entity is more workable.

Posted by: jnc4p | November 22, 2010 12:12 PM | Report abuse

I agree with johnlevine; Why can't we go with a simplified "Internet Commerce Tax" rate for each state and leave it up to the states to allocate the revenue among the thousands of taxing locales?

Instead of requiring online retailers to maintain tax tables for every county/district/city in the country, they could maintain a file of fewer than 60. The quarterly statements to each state could be accompanied by a list of totals by zip code and leave it up to the state treasuries to apportion what they want to localities.

That's should be an achievable for even small online retailers should be able to and would be much fairer for everyone.

Posted by: Athena_news | November 22, 2010 12:24 PM | Report abuse

"And who's left paying that increased sales tax? Lower-income consumers, mainly."

That's a shame. Let's just get rid of sales taxes and the associated spending, especially if it is hurting lower-income consumers as claimed here.

Posted by: justin84 | November 22, 2010 12:27 PM | Report abuse

I cannot read your column any longer after reading this post. It just displays such an ignorance of very simple economics. Attempting to justify increasing a tax on the basis that states need more money is absolutely ludicrous. The fact that you are unable to identify that certain states and the country itself failed to solve the simple equation of revenues < expenditures. Your argument is simply to expand the pool of expenditures. This is no solution and only rewards those that showed a lack of fiscal discipline, namely California, New York, Michigan, and Illinois.

Please, I beg of you, read a basic microeconomics text book chapter on taxes before you post something like this. Even Keynesians with their dwindling amounts of empirical evidence will admit that increasing taxes in circumstances such as these is NOT a wise idea.

Posted by: jplrx123 | November 22, 2010 1:01 PM | Report abuse

Yeah, how would this work in practice.

My sister lives in Chicago where there's a large local tax on most products. So she does a lot of shopping in Indiana.

Would she have to pay the high local Chicago tax on Amazon products even if she doesn't do most of her shopping in Chicago?

Seems like there would lots of complex issues like that if you try to close the tax loophole. And doing so wouldn't exactly make politicians popular.

Posted by: laser83 | November 22, 2010 1:22 PM | Report abuse

Yeah, how would this work in practice.

My sister lives in Chicago where there's a large local tax on most products. So she does a lot of shopping in Indiana.

Would she have to pay the high local Chicago tax on Amazon products even if she doesn't do most of her shopping in Chicago?

Seems like there would lots of complex issues like that if you try to close the tax loophole. And doing so wouldn't exactly make politicians popular.

Posted by: laser83 | November 22, 2010 1:23 PM | Report abuse

In New York, we do get taxed. If we do any online shopping, we pay a fixed amount at tax time.

Posted by: scott441 | November 22, 2010 1:41 PM | Report abuse

Right before Black Friday online deals and Cyber Tuesday? Merry Christmas to you too!

Btw as others may have noted, online customers do pay sales taxes in states where amazon.com has a physical presence. But let the lawyers debate the legalities.

In all seriousness with online shopping sites and sales taxes, the situation is analogous to shoppers living in a state with a sales tax who go across the state line to do their shopping in a state that:
a) doesn't have a sales tax; or
b) has a lower sales tax rate; or
c) exempts certain items from the sales tax.

Also, affluent people can save more money on more distant 'road trips' by spending what would be a poorer person's annual spending budget in one trip.

At least with amazon.com's free shipping policy, consumers aren't punished by tax geography or don't have to be wealthy to buy in such large amounts to come out better on their budget by making distant road trips.

Going amazon.com-specific, one could argue that imposing a sales tax on amazon.com would be regressive for less affluent folks who buy in smaller dollar amounts from that site. amazon.com's current minimum purchase to get free "super saver" shipping is a mere $25.

Posted by: tuber | November 22, 2010 2:16 PM | Report abuse

My Amazon purchases should be taxed when there is a national sales tax, and not before.

Posted by: xpda | November 22, 2010 2:37 PM | Report abuse

To MosBen:

Me too! You speak for me, and I hope for a lot of others who want us to pull out of this '30s style depression.

Posted by: lufrank1 | November 22, 2010 2:53 PM | Report abuse

Most if not all states have a use tax provision where people are already supposed to be reporting their Amazon.com purchases and paying tax to the state for them.

Posted by: jfung79 | November 22, 2010 2:58 PM | Report abuse

Well, not exactly.

States already tax these sales through a use tax. It's just that everyone is basically a tax cheat since no one pays the use tax.

But you could make much the same argument for purchases made on a vacation. Alaska, Delaware, Montana, New Hampshire and Oregon have no sales tax. If, as I did this past summer, I go to a meeting in Portland, and, as I did this summer, I buy a hat, some shoes and print a poster that I stupidly left in Hartsfield, I am supposed to declare those on my return to Georgia and pay a use tax on them.

I won't tell you what I did about that but I can guess what you did on your last out of town trip. Use tax is levied by pretty much every state on anything you purchase elsewhere that you plan to use when you return home. It is quite popular around these parts to go to Alabama to buy cars since there will be no sales tax. Should Alabama be forced to collect Georgia sales tax now? Should we all carry national ID cards so vacation spots can levy appropriate taxes based on where we live?

Is the lack of a directly levied sales tax an advantage? Well, yes, but shipping charges make that mostly a wash except perhaps on very high end items.

And in any case, states are certainly have no particular aversion to offering tax breaks for favored industries, up to and including total elimination of tax liability for some considerable time.

Online retailers have a small tax advantage that is mostly outweighed by higher shipping costs. Mostly, they undersell brick and mortar stores through significantly lower overhead and margins. Brick and morter retailers would like to convert that to a punitive taxation regime in order to secure competitive advantage through regulatory arbitrage. In the process, you would help to kill online retailing. The only winners, in the end, will be less efficient sellers and greed-obsessed states.

Thanks but no thanks.

Posted by: pj_camp | November 22, 2010 5:37 PM | Report abuse

--*Let's just get rid of sales taxes and the associated spending, especially if it is hurting lower-income consumers as claimed here.*--

Well said.

Posted by: msoja | November 22, 2010 7:41 PM | Report abuse

I think we should go to a consumption tax...that way poor people will pay taxes too.....

Posted by: bjeagle784 | November 22, 2010 8:29 PM | Report abuse

@pj_camp: Why do you have to pay Georgia taxes on things you buy in Delaware but not things you buy in Florida? Why does the fact that Delaware doesn't get a sales tax but Florida does have anything to do with how much Georgia gets. Can I get Sales Tax refund from states where I don't live (like a European VAT refund?).

I think a key question here is why are state sales taxes levied? Are they being levied to support where the buyer lives or where the seller lives?

Posted by: staticvars | November 22, 2010 9:42 PM | Report abuse

Just because AMZ and other online retailers don't collect sales tax, does not mean it is not due. All states with sales tax have a use tax, so consumers are supposed to track, report and remit taxes on their remote purchases...AMZ puts this burden on the consumer instead of collecting on your behalf.

Posted by: mntwin | November 23, 2010 9:58 AM | Report abuse

Just because AMZ and other online retailers don't collect sales tax, does not mean it is not due. All states with sales tax have a use tax, so consumers are supposed to track, report and remit taxes on their remote purchases...AMZ puts this burden on the consumer instead of collecting on your behalf.

Posted by: mntwin | November 23, 2010 9:59 AM | Report abuse

Subjecting internet sales to a state or federal sales tax comparable to local sales taxes would go a long way towards leveling the playing field for local businesses who pay local property taxes, business license taxes,and other local fees and taxes, and support local school and community programs, and who also employ local people. The present situation is unfair, detrimental to our local communities, and deprives government of revenue that is needed to keep people employed.

Posted by: lawherr | November 23, 2010 11:29 AM | Report abuse

$7 billion might seem like a lot but compared to the hole the states have dug for themselves it is just a drop in the bucket.

The answer is not to tax internet sales. The answer is for state governments to live within their means. A task so many of them simply refuse to do.

No more taxes until the governments, be it local, state, or fed, get their fiscal house in order. Anything else is like throwing booze at drunks and hoping they sober up later.

This is not about rich versus poor. It is simply about stopping the unmitigated greed of government.

Posted by: tk221 | November 23, 2010 3:48 PM | Report abuse

Some points of clarification. California, only, though some of this may apply elsewhere.

Businesses do not charge tax. The state and local governments charge the tax and the retailers collect and remit it.

The tax, called a "sales and use" tax is levied on the end user (whether a retail consumer or a business) who is also legally obligated to report all purchases made where no tax is collected. Few do.

An out-of-state business entity often does not collect taxes on purchases. Some do. If such a business also has an in-state presence like a warehouse, shipping depot or business office -- even where no actual sales occur, it must collect the tax.

Given California's current situation, it's unlikely that full compliance with the collecting of sales (yes, and use) tax would result in a lower rate. Neither would it end Furlough Fridays or shorten the lines at the DMV.

Posted by: billspaulding | November 23, 2010 4:56 PM | Report abuse

I agree with the article. This is not a new tax. The Main Street Fairness Act now pending before Congress is simply modernizing the law to catch up with the reality that so much shopping is now done online. If sales tax is charged in a state, the consumer is already responsible for reporting and paying that tax. Understandably though, many consumers don't keep track of every purchase and report them. It makes more sense for the seller to collect the tax, just as a bricks-and-mortar store does. Technology makes is easy for anyone to open a Web business, manage inventories, use target marketing, calculate shipping etc. Technology has solved this problem also. There are services available that comply with the Streamlined Sales Tax agreement, at no cost to the merchants.
It is better that Congress address this issue so that all businesses collect the correct tax. Until then, more and more states are going to be attempting on their own to collect these taxes, which will 1) raise privacy concerns and 2) raise more fairness issues since not all consumers will be contacted to pay up.

Posted by: bvaccaro1 | November 23, 2010 8:28 PM | Report abuse

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