Amazon Finds Tax Very Taxing in Texas

Tax can be taxing and those who think that business will always pay the price have had another potential wake up call this week. Amazon in long had a dispute with Texas state atre threatening to take their business elsewhere. Texas are claiming Amazon has to pay collect sales tax to the tune of some $265 million.

Amazon’s battles with US states over tax are not new and only last year, it won a case against North Carolina's Department of Revenue, which had demanded records of 50 million customers' transactions between 2003 and 2010 in a dispute over unpaid tax. The state had passed a law demanding all residents to pay taxes on online purchases but those retailers who operate outside of the state can't be forced to collect state taxes. However the state tried to claim duty for the years Amazon had worked with a network of local affiliates. In court the judge ruled the records North Carolina sought were protected under the US constitution's first amendment.

In order to avoid a similar challenge Amazon cut links with affiliates in Rhode Island and Hawaii where laws similar to North Carolina had been passed. Amazon sued the State of New York in 2008 over its law forcing big-name online retailers to collect sales tax on all goods shipped to the state.

Amazon has been appealing against the Texas demand but now are apparently saying that they are not only scrapping plans to expand their Texan facilities, which would have brought tens of millions of investment dollars into the state and created over 1,000 new jobs, but may abandon the state and shut its Irving distribution facility in the Dallas Fort Worth area.

Texas are standing resolute stating that if you have a physical business presence in the state of Texas, you owe sales tax and estimates Texas loses $600 million annually in uncollected sales tax from all Internet-based sales. The US challenge is firstly one of consistency across states with the lure of neighbouring states often being more response to accommodate the investment and jobs. The challenge for Amazon is creating a logical physical distribution network and also accommodating local affiliate sales.

We are now living in a global world that is taxed locally and inconsistently and this is not just a US state issue as the same applies across trading blocks such as Europe. Any none US resident business or individual wishing to ‘publish’ a ebook on Amazon or the major aggregators today has to grapple with US tax irrespective of where in the world the sales occur. Taxing only the businesses that have facilities in the state and not taxing those outside the state appears to be equivalent to self harm.

Dallas News source

Sales Tax Impacts Amazon Affiliates

Amazon continues with its affiliate program in New York but has now stopped its affiliate programs in both Rhode Island and North Carolina. All three states have passed laws that would have required Amazon to collect sales tax on their affiliate program. Obviously, some states are worth the effort others maybe not.

So what is this sales tax and why is it affecting affiliate programs?

Sales tax is applied to the total amount of the order including gift-wrap fees and is based on the shipment's destination state and local sales tax rates. States that impose sales tax collection on Shipping & Handling expenses require that sales tax be applied to Shipping & Handling when the item that is being shipped is subject to sales tax. There are exemptions such as magazines, bibles and some states have no sales tax. The US also needs to note that goods sold to Canada incur GST (Goods and Services Tax).

The state of many state budgets is forcing them to look again at Sales tax and the opportunity to close loopholes and collect money. After all the tax is exactly the same as someone buying a book or goods in a retail store, they total the goods up and then sales tax is applied at the checkout. In the case of the affiliate program they would have to collect the tax and many may claim this would impact their business. So as an affiliate it would appear I have an economic model built on tax avoidance.

The question then is whether Amazon is right to blame the tax system for their withdraw from North Carolina, but accommodate it in New York? Many, such as Barnes and Noble, operate affiliate programs and deal with the taxation issues, so why can’t Amazon? Some may say that the affiliate program was just a way to build their brand and drive more buyers to what was an Amazon store that was being merchandised by others. They would also point out that the Kindle is ‘affiliate free’ and there has been a steady change in the affiliate business model that has been applied in Amazon’s favour.

There needs to be a level playing field between the physical store and the virtual one. Like so many issues, digitisation is now forcing us to question boundaries, rules and practices that have never been really tested.