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Will Amazon run out of places to flee?

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* If more states enact this law, then Amazon may have no choice but to finally start collecting sales taxes. A federal solution would be preferable, but it doesn’t appear likely. Anyway, leaving California would be a big deal and could eat into the company’s profits has threatened to cut off more than 10,000 affiliates in California if state lawmakers pass legislation requiring the Internet retailer to collect sales tax from state residents.

Seattle-based Amazon said four bills introduced in the state legislature are unconstitutional because they would require sellers with no physical presence in California to collect sales tax from its residents, Paul Misener, Amazon’s vice president for global public policy, wrote in a letter (PDF) to the California Board of Equalization, the state agency responsible for collecting property and sales taxes. […]

Amazon has closed its affiliate programs in Colorado, North Carolina, and Rhode Island over similar disputes. And in February, Amazon threatened to close a distribution facility in Texas after receiving a $269 million bill for uncollected sales taxes.

Illinois now has a similar law on its books and the company has announced that it will cut ties with its associates here next month. Amazon has filed suit against a New York law.

* The fight is certainly spreading

Here’s a list of states with bills pending that would require out-of-state retailers to collect sales tax from online shoppers, if they use affiliates within that state:

* Arizona: HB 2551
* California: AB 153 and AB 155 (similar bill)
* Connecticut: HB 5543; HB 5545 (similar bill); SB 259 (companion bill)
* Hawaii: HB 1183
* Illinois: SB 1783 (would reverse HB 3569’s affiliate definition)
* Massachusetts: HO 1731
* Minnesota: SB 458
* Mississippi: HB 363 (died in House Ways and Means committee)
* New Mexico: SB 95 and HB 102 (companion bill)
* Rhode Island: HB 5115 (would repeal existing Nexus law)
* Tennessee: HB1912
* Texas: HB 1317
* Vermont: HB 143

Keep in mind that an introduced bill doesn’t mean the bill will actually pass. Bills are really easy to introduce.

* The Tennessee fight looks interesting

Tennessee retailers, led by Walmart, are putting a full court press on the state Legislature to prevent a sales tax exemption for Amazon. The online retailer is building distribution centers near Chattanooga, and with a physical presence in the state it is possible for the state to require the company to collect and remit sales tax on any items bought by Tennessee residents.

But initially, state government—eyeing 1,200 jobs at the centers—has said Amazon doesn’t have to collect sales tax.

Tennessee retailers have to collect sales tax and turn it over to the state and small businesses in Tennessee selling online are supposed to collect sales tax and do likewise.

* Texas insisted that Amazon pay the tax, and now it may be pulling up some big stakes

As a result of an ongoing tax dispute with Texas, has decided to take its ball and go home.

The online retailer said Thursday that it would shutter its Irving distribution facility April 12 and cancel plans to hire as many as 1,000 additional workers rather than pay Texas what the state says is owed in uncollected sales tax.

Texas wants $269 million from Seattle-based Amazon in past-due sales tax. It sent the bill to the company last October.

“Despite much hard work and the support of other Texas officials, we’ve been unable to come to a resolution with the Texas comptroller’s office,” Dave Clark, vice president of operations for the facility, said in a letter sent to its employees here announcing the closure.

* In the meantime, Wisconsin might pick up some Illinois jobs

The owner of a Rockford area business speaks out for the first time since the governor signed a bill he says, will force his company out of state.

FatWallet Founder and CEO Tim Strom isn’t happy about the bill. Illinois Governor Pat Quinn signed it last week. It forces out-of-state companies that do business with companies like FatWallet, to pay Illinois sales taxes. That’s something they don’t do in surrounding states. “We’ve already begun the process of looking at where we want to relocate outside the state of Illinois moving to Wisconsin is the simplest thing to do from an ease point of view,” says FatWallet CEO Tim Strom.

If this new tax bill isn’t repealed, Storm says it’ll cost his company between 30% and 40% of its revenue. Some companies like Amazon and Overstock have already said they’ll cut ties with FatWallet next month. Storm says the law hurts any person or non-profit in Illinois that puts a link to something for sale on their website because the seller has to pay sales tax on it. “There’s going to be a lot of people that are online affiliates that simply use it to supplement their income for posting a link on their website, and there are certainly charities that use this methodology for generating income as well those are going to shut down.”

posted by Rich Miller
Wednesday, Mar 16, 11 @ 10:19 am


  1. Amazon absolutely will out of places to flee. The states need the money and Main Street retailers are tired of getting kicked in the teeth with their margin advantage.

    Comment by wordslinger Wednesday, Mar 16, 11 @ 10:36 am

  2. Very curious if Texas’ governor is on board. At the end of the day, won’t one state be a leech? Maybe, say, a certain leech state that starts with the letter D?

    Comment by lake county democrat Wednesday, Mar 16, 11 @ 10:41 am

  3. I can’t help but think of Delaware.

    Comment by MikeMacD Wednesday, Mar 16, 11 @ 10:42 am

  4. I think Amazon would shut down their entire associates program before collecting the tax. Other companies have done that. I was terminated from a large pet care company last year who decided to kill their entire program rather than go state by state as legislation was passed. Affiliates send a lot of business to companies, but Amazon apparently thinks it would lose more by collecting tax than it loses by terminating affiliates.

    Comment by CC Wednesday, Mar 16, 11 @ 10:59 am

  5. Amazon has been an amazing success story. Grown from nothing in front of our very eyes because it meets real people’s needs–today. Amazon has competitive pricing, excellent customer service and near instant delivery. It is far less likely to be “out of stock” of the exact item you need and brand you want than is your big box local store where you all too frequently have to compromise and buy what they happen to have on hand.

    I can’t help but think the attempts to neuter them and weigh Amazon down with lawsuits and legislation (with the explicit encouragement of competitor big box stores) will have unintended consequences. There is more to the economic big picture in retailing than sales taxes.

    Comment by Responsa Wednesday, Mar 16, 11 @ 11:00 am

  6. It is my opinion without the tax advantage Amazon loses most of its competitive edge. Big box companies have learned how to compete on price, but a 9.5% total cost advantage is huge. The states like Texas have little reason to worry about 1200 jobs that pay $12.00 hr vs the tax revenue both sales and property tax. Plus how many retail jobs are lost?

    Comment by jeff Wednesday, Mar 16, 11 @ 11:28 am

  7. @Responsa - If Amazon is “neutered” by a mere obligation to collect sales tax, then perhaps it isn’t such “an amazing success story” after all.

    – MrJM

    Comment by MrJM Wednesday, Mar 16, 11 @ 11:31 am

  8. Amazon found a tax loophole niche and built on it. Good for them. It worked well and they have built a successful operation. The dollar size of this particular loophole has caught the attention of taxing bodies across the country who are looking for more bucks. The box stores are going to be all over it to narrow the price gap. That’s also good for the consumer. Catalogs were hot at one time. Online is hot now. The business model keeps changing as the market changes. Amazon will be forced to adjust.

    Comment by zatoichi Wednesday, Mar 16, 11 @ 11:48 am

  9. Aren’t their some states that don’t have any sales tax at all? I seem to remember visiting Montana and Oregon way back in the ’80s and that was the case then.

    Comment by cermak_rd Wednesday, Mar 16, 11 @ 12:05 pm

  10. I doubt that Amazon would so readily cancel its affiliates if it were that important to their bottom line. If they have made that business decision, it is probably not a half-baked decision. Not saying whether or not it is fair or right.

    There is a distinct chance that this will not result any new gain of sales tax revenue but it will certainly have a negative effect on employment and related income taxes.

    Comment by Nuance Wednesday, Mar 16, 11 @ 12:07 pm

  11. Amazon should charge the tax instead of throwing
    out Illinois vendors.If our guys get tossed I will
    forget about using Amazon. If Amazon is smart they
    can’t just get rid of states that want their taxes. We should protect our brick and motar stores.

    Comment by mokenavince Wednesday, Mar 16, 11 @ 12:12 pm

  12. Fat Wallet will have to move since this bill is not going to be repealed. It’s business model, based on avoiding state taxes and thereby creating a taxpayer subsidy for itself, was flawed. Now Illinois should close more loopholes.

    Comment by John Parnell Wednesday, Mar 16, 11 @ 12:16 pm

  13. Sales and residential property taxes are regressive and unfairly target those with low and moderate incomes. The states who impose confiscatory sales taxes, like IL, should go back to the drawing board regarding revenue collections. Amazon would do us all a favor and relocate to Mexico or some other nearby nation which offers protection against multiple inferior government units imposing logistically difficult and costly tax collection schemes on it. The problem here is not with Amazon; it’s with state governemnts.

    Comment by Cook County Commoner Wednesday, Mar 16, 11 @ 1:05 pm

  14. CCC, how does a state generate revenue without sales/property taxes?

    Comment by Cheryl44 Wednesday, Mar 16, 11 @ 1:48 pm

  15. “The states who impose confiscatory sales taxes, like IL, should go back to the drawing board regarding revenue collections.”

    As has been noted by Rich and other commentators, one of the issues at work is here that the sales tax collected in Illinois is falling on an ever-narrowing slice of economic activity - sales of goods. What’s needed are reforms that extend the reach of taxes to sales of services while lowering the overall burden. I don’t know that the Amazon tax is going to be very effective at doing either, but I’m having a hard time time feeling bad for Amazon, too.

    Comment by davidh60010 Wednesday, Mar 16, 11 @ 3:53 pm

  16. –Amazon would do us all a favor and relocate to Mexico or some other nearby nation which offers protection against multiple inferior government units imposing logistically difficult and costly tax collection schemes on it. The problem here is not with Amazon; it’s with state governemnts.–

    Protection of investments in Mexico? Tell me more, please.

    How about the Cayman Islands, or Russia, or China, or Somalia, or anywhere else where the Rule of Law and taxation means whatever the Local Warlord of the Month says it is?

    It’s amazing to me, always, the unappreciative, unpatriotic gas you get from successful businesses in the United States. Invest somewhere else, and when you get robbed blind, good luck getting in back.

    How in the world do you not understand that there’s a price in transparency, (there used to be more), social stability and law for your investment?

    A lot of people in this country were born on third base and think they hit a triple. The most exciting play in baseball, by the way. April is coming soon, sports fans.

    Comment by wordslinger Wednesday, Mar 16, 11 @ 4:12 pm

  17. The archaic sales tax system and new age internet are clashing, but these attempts to extend taxes to transactions by affiliates are very short-sighted.

    Those who believe this is a battle between Amazon and big box or brick-n-mortar retailers are missing the big picture, which is that many innovative startups yet-to-be-created are the real losers in this.

    Let the marketplace shake out the winners, but those who think Amazon has an advantage are forgetting the cost of shipping.

    I Quinn doesn’t make yet another stupid mistake to drive out business.

    Comment by Rob Wednesday, Mar 16, 11 @ 6:03 pm

  18. The States and some retailers can whine all they want, but what Amazon is doing is 100% legal and by the law. Unless they have a physical business building in the State, they don’t have to collect tax. Federal law says so.

    Even if they did collect tax, they would still beat out local retailers in price. So local retailers aren’t going to win no matter what.

    Comment by jd Thursday, Mar 17, 11 @ 9:59 pm

  19. Amazon is a business who exploited a loophole for its profit margin. Ultimately, it’s success has been on the backs of states and its citizens.

    Comment by Book Wert Tuesday, Mar 22, 11 @ 5:49 pm

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