I'm not sure what to make of your post. I think you may have overstated the significance of Internet sales and the avoidance of local sales tax collection obligations as a great competitive advantage. Sure people buy things over the Net with the full understanding that they're paying less by not paying the sales tax. They're paying more though by paying shipping costs which often balance out with sales tax or at least make the price difference insignificant other than for the seller's price discount - the usual fundamental of business competition. The Supreme Court recently ruled that manufacturers, wholesalers or whatever it was could force retailers to adhere to set pricing schemes. That could effectively end discounting and would probably have a more significant impact on sales, Internet or otherwise, than forcing state sales tax collection for web purchases.

Except for other giant businesses like Walmart, which have brick and mortar locations throughout the nation, the local businesses can also enjoy the same tax avoidance if they offered their items for sale over the web. With that in mind, the big advantage that Amazon has is its size rather than its business model. But then that means it's little different from Walmart in its competitive advantage.

There are a couple of things that should be pointed out. First, this avoidance of sales tax is not new to the web. Before the web people bought things through mail order. If those purchases were out of state no tax was collected or paid. Many magazines were filled with ads for businesses doing exactly that type of mail order sales.

Second point - the avoidance of paying sales tax may well be a tax crime - for the individual. Amazon isn't required to collect the sales tax but, at least in New York state, the purchaser is supposed to pay the tax. The state income tax form now requires that individuals indicate what out of state purchases they've made and if there were any and sales tax was not paid, then it should be listed on the return and paid with it. It's a bass ackwards way of dealing with the situation, effectively making criminals of people buying things. I'm guessing the state is most concerned with regular large out of state purchasers rather than the occasional Net shopper. I think New York added a minimum purchase amount for tax liability the last year though I can't remember for certain.

I'm not sure you'd get any wide spread benefit if out of state sales tax collection was required. Likely there would be a big drop in Internet sales with a much smaller rise in local sales. The other unfortunate aspect is that sales taxes are regressive. This regressive aspect is most apparent with states that charge sales tax even on essential items like food and clothing. I can easily see federally enforcing state sales tax collection extending into a pure federal value-added tax adding another completely regressive tax to the tax structure. So be careful what you wish for. You may get it and more.

P.S.

Regarding Amazon, I'm no fan. I made a purchase through them that had a rebate involved. I could not collect on my rebate submission and was completely ignored in my attempts to get a response as to why I didn't receive a rebate. The purchase was from Amazon and the rebate was supposed to be from Amazon, so verification of the sale's details could easily be done by Amazon. When I went to ResellerRatings.com to look at Amazon and post about my experience I was surprised to see just how bad a rating Amazon had. We've come a long way from the venture capital days of free $50 shipping charge hand delivered $20 books to keep customers happy.

Until you get into big numbers, an 8% sales tax might not add up to enough to want to avoid. And, until you get to bigger numbers, it's harder to get free shipping from Amazon.

So, yes you can save money by placing large orders with Amazon and choosing the free shipping option.

That's a bad thing?

Why are we defending sales taxes? They're regressive. They're also unfair. The only income I have to spend has already been taxed by the federal government and likely by the state government as well. In my cases, there's also a city withholding. Now the city and state, who have already taxed me, take a sales tax cut? What gives? I thought we were sold a cut on dividend taxes because the money had already been taxed. But this is acceptable?

The answer shouldn't be to extend an unfair sales tax regime to the Internet. It's not practical, but I'd be far more interested, if we're going to have income taxes, in getting rid of purchase taxes entirely. People really shouldn't be taxed both when they earn and when they spend and they really can't be taxed progressively on what they spend.

So drop the sales tax and increase the top tax rates to make up for lost revenue.

thosethingswesay.blogspot.com

I'm not sure you can chalk up Amazon's success to sales tax avoidance, or say that Amazon would be hurt if it charged sales tax.

In today's time-pressed, traffic-choked world, a lot of people are willing to pay a significant premium merely to avoid driving somewhere and standing in line.

As evidence, I offer Ticketmaster, which was making a mint off this desire long before Amazon or the Internet existed.

Actually, you are wrong. I live in a sales-tax state, and I shop on Amazon frequently (getting to ANY store is a major trip for me) and I can tell you that Amazon DOES collect the state sales tax!

Better do a little more research before you come up with a theory.

I have to agree with several of the posts above. I live in a high (9.75%) sales tax state, but I almost never make purchasing decisions on that basis. I purchase from whoever meets my current needs and that's a combination of price, product choice and availability, how soon I want the product, personal time and convenience, etc.

I have paid sales tax many times on internet purchases, and have also paid shipping fees that exceeded what the tax would have been on other purchases. It's not a simple case of tax avoidence, but more a matter of specific circumstances
regarding a specific purchase.

Don't forget that WalMart, Target, Costco, and many other B&M stores have successful web sites where you do pay both tax and shipping. One reason many economists are so off base in their analyses is this type of simplistic thinking.

I have to disagree, not just with the sales tax theory (Amazon.com does, in fact, charge sales tax), but in the overall reasoning on why Amazon has become successful.

Let's not forget Amazon produced net losses since its inception (1995) until 2002, when it posted a whopping penny profit.  The revenues it generated during that time were turned right back around for acquisitions.

Marketing, direct shipping, ease user interfaces, and economies of scale are what allows Amazon.com to remain successful.

~~~~~~~~~~~

Is est vicis muto probo.

Come visit PROJECT: Lucidity
Where everybody knows your name...
unless you use a pseudonym

Why look at it as an Amazon subsidy that needs to be closed? Couldn't one easily say that the other sales taxes are the problem and that if you want to level the playing field, get rid of sales taxes?

After all, the money spent has largely been taxed already anyway. Why should I be taxed not only when I make money but when I spend it?

thosethingswesay.blogspot.com

I think your analysis is simplistic.

I live in a 6.5 percent tax state and I do not base my internet purchases on tax avoidance. I like the convenience of being able to shop for products nation wide from my easy chair and have them show up at my doorstep with the click of my mouse in a few days. The cost of driving around my local area looking for the same product, even if it were available, would easily cost more than the taxes I sometimes avoid in all but the most high end purchases.

All this talk and nobody has mentioned catalog sales yet?

As it says at the link you give (thank you) they ONLY collect sales tax for the 4 states in which they have a physical presence: KS, KY, ND and WA, as required by law.

That's for their own merchandise. If you scroll down to the heading "Sales Tax on Items Purchased from Select Amazon Merchants," they give some examples of other companies that use their site to sell and what those companies sales tax requirements are. If you buy on Amazon from another company, you may be charged tax because that company has a physical presence in your state.

There is a good reason that all online retailers are still not required to collect sales tax from all 50 states. It's called small business, the new field of small internet business, Mom & Pop retailers, example: that guy you know selling software on the net. It all started with average Joe selling his extraneous stuff on Ebay, the taxing authority of CA was going to track down Sallie Smith in Boston selling her heirloom to Linda Jones in San Francisco. Sallie in Boston would not have sold the heirloom if selling it required she collect CA sales tax, put it in a special escrow account for the CA government, and fill out the quarterly tax form to pay CA the tax.

Lots of online retailing grew slowly, the guy who started out selling some pieces of luggage on ebay that he bought at a Wholesale Liquidator store found a wholesaler himself to buy more luggage and eventually moved off of Ebay and onto his own site. Still, he is small, and collecting sales tax for 50 different states is something that would require many employees, employees he cannot afford, that would put him out of business. Either that or he would have to restrict his business to only a few states, which could also put him out of business.

Sure Amazon could afford the bureaucracy to collect for all 50 states, like Target.com has to because they have stores everywhere. But where do you draw the line on what companies have to do it? And who will enforce it if you do? You want to pay the Feds to enfocce state sales tax for each state than why are you even bothering with states collecting the tax?

By the way, Amos Anan (@ 7:19am) is correct that when a seller does not have a physical presence in a state, the legal onus is on the buyer to pay their state "use tax" the equivalent of sales tax, not the seller. Yes, all of you who bought something on the net or via mail order that you were not charged your locality's sales tax on are supposed to pay those taxes. It is not enforced except in special or high dollar cases, ask Dennis Kozlowski about that. Ask a tax attorney if you buy something of several thousand dollars via internet or mail order if you should pay the use tax because sales tax was not collected by the seller, and he/she will likely tell you, despite the experience of Dennis Kozlowski, that it's best not to bother because it is so unusual for people to do so, it might trigger an audit or some such. (The latter comes from personal anecdote of a client with a strong conscience, who actually did ask an attorney.)

I love it when big business takes small businesses and hostages. Wait, wait, if you make us pay sales tax then Joe and Jane small business owner will also have to pay tax -- the horror, the horror.

They are two easy answers for this. Small businesses are wonderful, but I don't want poor kids denied health care to subsidize them. If they believe in the market, then damn it, make it in the market. We don't have to bend every rule so that small businesses who couldn't otherwise make a profit can still survive.

Of course, if we wanted to structure this in a small business friendly way, we can institute some basic rules that would make the tax collection very simple. (If they can't manage an Excel spread sheet, then they probably should not be in business.) If they get some items wrong, so what? All items are not taxed at the proper rate in brick and mortar stores. If a scarf or piece of jewelry is occasionally assessed the wrong tax rate in a county in New Jersey, the world will not come to an end.

Unlike others on this thread, I admit I am one of those people who takes into account the sales tax when I purchase things on the net over a small amount like over $25. I usually search for something I need on google first, get a couple of sites offering the item, and then I do the checkout on the best sites to see what the shipping and taxes are. I read more than one business articles on internet sales that said a lot of people fill a shopping cart but don't finish transactions, and I imagine a lot of those people are doing the same thing that I do. (Example: if you are buying a case of brand- name masonry caulk for your house, would you rather pay $99.00 or $115 including tax & shipping?) If you live in NYC like I do, why wouldn't you chose the place that gives you a 8.375% discount (no sales tax) if the shipping charge is the same? You must all be well-off enough not to care that the net empowers you to comparison shop.

And no, I don't pay the use taxes, because no one else does either and New York State doesn't seem to care. You know, there is an one interesting case on that where they did care. Elliot Spitzer, when he was Attorney General of New York, tried to put the Indian reservations out of the business of selling untaxed cigarettes via internet and mail/phone order by getting the records from some of the Credit Card companies of the purchases. He sent some warning letters to the purchasers that they owed the tax. The idea was not to get all the purchasers to file and pay use tax, the idea was to scare the purchasers away from buying from the Indian reservations and to switch to paying for New York State taxed cigarettes in their own locality. The Indian reservations' business was selling untaxed cigarettes, there was little reason to buy taxed cigarettes from an Indian reservation.

Aren't you a little late to the mat with this debate Dean? Congress just passed another 7 year moratorium on Internet taxes.

If you are suggesting that Amazon is the "bad guy" and Walmart is the "good guy" you are clearly mistaken. Walmart doesn't provide health insurance or other benefits for it's employees. They barely pay them minimum wage.

I would much rather support Amazon over Walmart ANY day.

BAC

Could you possibly learn how to read? "unless you are unlucky enough to live in one of the four states where Amazon has a physical presence". Those are the only states for which Amazon collects state sales tax.

As for the other states, you don't have to pay sales tax to Amazon, but by law -- that most people break -- you do have to pay it on your state income tax form.

It's funny to read all these people talking about making up for it in shipping costs. Aside from the fact that Amazon's discounted prices usually make up for that, UPS isn't the state; paying shipping costs doesn't pay for libraries or fire fighters.

It's not the money that is being taxed, it is you who are being taxed -- as part of the social contract.

Has this site been taken over by libertarians?

Piling on with other fools who can't read and don't know anything about on-line commerce or about the scope of law. Amazon, like all other on-line vendors, only collects sales tax for those states under whose laws Amazon is subject because physically selling from that state.

You don't base your purchases on cost? If you do, they you are, in effect, basing your purchases on tax avoidance when you buy from Amazon, even if that isn't your /conscious/ basis. It helps to /be/ conscious if you're going to accuse others of simplistic analysis.

I'll repeat, Amazon.com does, in fact, charge sales tax. They do. Period.

Doesn't matter that it's only in the four states where Amazon has a physical location. That's all that's required of them, or any other store, physical or online.

Companies selling over the Internet are subject to the same sales tax collection requirements as any other retailers. Remote sellers (including Internet retailers and catalog companies) are generally required to collect taxes where they have a physical selling presence. If they do not have any such presence, they are not required to collect sales taxes.

It's the same thing as Washingtonians coming down to Oregon (no sales tax) for shopping. Oregonians don't see it as unfair (we actually like the revenue), and the Washington legislature can certainly get rid of the sales tax if it was that much of a problem.

Amazon is like any other business: it exists to make money. And in this particular situation, they are abiding by the law. Have a problem with the tax collection from the internet? Then lobby your Congresspeople. 

~~~~~~~~~~~

Is est vicis muto probo.

Come visit PROJECT: Lucidity
Where everybody knows your name...
unless you use a pseudonym

My point is that there are many other factors that go into the decision to purchase a product on line than price. Assuming the net price of the product is within a few percentage points, the sales tax avoidance is not the deciding factor for me, contrary to to what Baker simplistically implied.