Taxing Amazon: Will The Internet Retailer Be Forced To Charge Sales Tax?

A current bill finding its way through Congress is aimed at forcing internet retailers to collect sales tax from their customers, even when those customers live in a state where the store doesn't have a physcial presence. If this bill passes, giants like Amazon could be facing some big changes.

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Taxes are often the breaking point for electors when it comes time to hit the voting booths, but never before have those taxes sitting on the platform been so directed at a single entity: Amazon.com.

Gov. Rick Scott recently rejected a proposal by Amazon to move into his state of Florida, citing that neither side could come to an agreement over the subject of taxation. In reality, if Amazon were to establish a physical presence in the state of Florida, they would be forced to collect sales tax from its customers, adding millions of dollars to the state revenue in addition to bringing hundreds of jobs. While that sounds like an excellent plan for any governor to embrace, Scott didn’t.

In view of an upcoming election, Scott doesn’t want to appear to support tax “increases” for his constituents, even if those increases only fall on online purchases.

Currently, all U.S. citizens are required to pay taxes for online purchases, typically claiming those purchases when they file their state income taxes. However, few people – if any – actually do. Meanwhile, states cannot force Amazon to collect sales tax unless it has a physical presence in that state, like the one it has in Kansas, Kentucky, New York, North Dakota and Washington, where all residents automatically pay sales tax on Amazon purchases.

According to the Miami Herald, Scott's decision follows on the heels of the debate in Congress on whether or not to allow states to collect sales taxes on Internet purchases their residents make with out-of-state companies.[i] The bill is called the “Marketplace Fairness Act” and it is making its way through Congress right now. The bill would require online retailers with sales of at least $1 million to collect sales taxes for the states where they ship goods.

The measure has already passed the U.S. Senate, but it has been opposed by leading Republicans. It is doubtful that it will pass the U.S. House of Representatives. President Obama is expected to sign the legislation should the bill make it to his desk. USA Today quotes White House spokesman Jay Carney as saying that the bill would "level the playing" field for local bricks-and-mortar stores as they compete against the mega-retailers like Amazon and eBay.[ii]

Organizations such as the Florida Retail Federation have long stood by the fact that Amazon and other similar internet companies have an unfair advantage because of the lack of sales tax that they are charging, making their prices seem less than traditional retailers with a physical presence that are forced to collect the sales tax on all purchases. According to the U.S. Department of Commerce, billions are at stake. Last year, online sales accounted for more than $225 billion dollars, leaving a lot of sales uncollected.

On the other side of the table is the fact that Amazon is, as always, looking to expand their presence throughout the country, which could land them in every state in the nation, settling this sales tax debate outright. However, that possibility is still a few years off. In the meantime, Amazon could offset this need to charge sales tax with bigger and better services, much like they have been doing in introducing products like their Prime membership, which offers free two-day shipping on thousands of products and free streaming of select videos and television shows. Next up could be same-day shipping or even Amazon storefronts.

A sales tax bill could certainly level the playing field with more traditional stores like Best Buy which competes almost directly with Amazon on electronics, but has to collect sales tax on its in store and online orders. In fact, places like Best Buy could get a boost, according to ABCnews.com, since customers would be able to pick up the item directly from stores or return it directly, instead of through the mail. [iii]

Amazon is also starting to warm up to the idea of the mandatory sales tax. If one is imposed, it could provide a barrier to entry for smaller online retailers, clinching the title for Amazon as king of internet retail.

The debate is in an interesting one to follow, as it affects consumers, businesses and government on so many different levels and on so many different issues. Should internet retailers be forced to collect sales tax from their consumers? If it does pass, how will this affect industrial distributors doing business online?

We’d love to hear your thoughts. Comment below, email me at Abbigail.kriebs@advantagemedia.com, or follow @AbbigailatID on Twitter.

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