Amazon Will Be Pleased – Scotus Allows States To Insist Upon Online Sales Taxes

For the early years of Amazon’s existence it was just fine with the idea – and the law – that it didn’t have to collect sales taxes. Not that it worked quite like that, but the general outcome was roughly that. As Amazon grew larger its view shifted, to where it does collect sales taxes for each state that imposes one. It’s also supported the idea that everyone else should do so as well – odd that, isn’t it?

Thus this decision from the Supreme Court is going to please:

The Supreme Court ruled Thursday that states can compel retailers to collect sales taxes even if they don’t have a physical presence in the state.
The ruling overturned a 1992 Supreme Court precedent and potentially paves the way for consumers to pay more for their online purchases.

Shares of Amazon, Wayfair , Etsy and eBay all dipped in early trading Thursday immediately following the ruling.

There might be an interesting little speculation there, given that Amazon already collects such taxes, the competition doesn’t necessarily, so this should benefit AMZN. The background is:

In 1967, the Supreme Court ruled that states could not force mail-order catalog companies to collect sales taxes unless a buyer lived in a state where the company had a physical presence — a retail store, a headquarters, or a distribution center, for example. The court reasoned then that the volume of mail order business was minor compared to in-store sales and that catalog companies would face too big a burden in having to figure out the correct sales tax, given widely different rates around the country.

The concept is entirely similar to, but not exactly the same as, the idea of permanent establishment that prevails in international taxation matters. It also explains Amazon’s volte face on the issue. When it started it had a physical presence near nowhere. Now it has one in most states. It has slipped over the line from being free of the need to collect sales taxes to having to under the old rules. Thus the general support for a change in the law in general, so that its smaller and nimbler competitors are also hindered by the requirement.

Despite all of that it’s a sensible move by the court. It’s not quite trivially easy but in this age of computerisation it’s entirely possible to maintain a database of those different sales tax rates, yea even down to the county and city rules. Plug in the zip code of the customer and the right rate is easy enough to apply. Thus the justification for the exemption has gone. Further, it’s the obvious way the system should work. If we’re to have a consumption tax then it should apply equally to different methods of providing the same thing. Finally, the EU has faced this problem with VAT and come to the same solution. The vendor must apply tax at the level of the destination jurisdiction.

So, yes, sensible decision, however much Amazon will like it.

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There will, of course, now be an incentive for smaller internet sellers to stay small enough to stay under the radar. Filing sales tax returns, even with computerization, will be relatively onerous.


Yes; as there is more to the imposition of numerous local taxes than the technical problem of being able to compute the correct amount to pay. An internet retailer will also have to be prepared to respond to audits from uncountable tax collectors, all emboldened by their new power to collect from businesses outside their territory without any electoral reaction.


I have been through one and only one sales tax audit. That was enough. I highly recommend that anyone who is about to be audited by their state (or I guess any state) hire an experienced consultant to represent you.


PS — Being a small internet seller has the same problem as being a small internet blog: the need to publicize it in order to produce site traffic. Most of the small fry do so by hooking up with Amazon, eBay, Walmart, etc., and one of the services it will provide (for a newly increased charge) is to collect the sales tax for you.