[bambax]

Amazon in France pays sales tax, just like everybody. Sales tax in France is 20% (19,6% to be precise). Is that a problem for Amazon in France? It doesn't seem so.

I can't find a justification why online retailers should be exempt from sales tax; the reason invoked by Amazon US is that sales tax are a local tax, at the state level, and they happen to be located in a different state (they're always in a different state).

This reasoning is preposterous; the sales happens where the customer is, and that's where the tax is due. That's what will happen eventually; they are just buying time -- and not very elegantly.

[repiret]

I disagree. Consider the following sequence of examples:

1. I have a store in Oregon, a US state with no sales tax. You live in France, and while on vacation here, you buy a trinket, and carry it home in your luggage. Clearly, I don't have to pay French sales tax. You might owe some import duty when you bring it home.

2. Suppose instead that the trinket is big and heavy, so rather than putting it in your luggage, you have me mail it to you. Its still pretty clear I shouldn't have to pay French sales tax.

3. When you get home, you like the trinket so much, you want a second one. You know that your cousin will be visiting the area, so you give her money, she gives it to me, and I mail you the second trinket. You probably still agree I don't have to pay French sales tax.

4. Suppose your cousin, and nobody you knew, was going to be near my store. So instead you hire an agent to deliver me the money instead. Now perhaps its starting to get a bit murky, but I don't see that the agent is morally different from your cousin, and the use of an agent should not avail me to French sales tax liability.

If that agent is named "the postoffice", then what we have is a typical mail-order business. And I think you can make a good case that online business should be treated a lot like mail-order business.

* * *

Now if we repeat those examples with my store in California and you in New York, there are two differences. First, California has sales tax, so in the first example, California sales tax would unquestionably be owed. Second, at some point along the way to the last example, we became engaged in inter-state commerce. The United States constitution forbids states from regulating inter-state commerce. This has been construed to mean that mail-order business is interstate commerce, and as such, neither the state of the seller nor the state of the buyer have a right to impose sales tax. Online business has, correctly I believe, been treated the same as mail-order. Most states have a "use tax", which requires a tax be paid on new goods brought into the state for use in the state. The problem is out of state sellers can't legally be required to collect it, or even report enough details for the state to reasonably enforce it.

Legal issues aside, allowing inter-state commerce to be used as a sales tax evasion scheme doesn't seem like good public policy. But the obvious fix - collecting sales tax for the locale of the buyer - is not logistically simple: states, counties and cities can all impose their own sales tax, so across the country there are thousands of different government authorities to which sales tax must be remitted and thousands of different tax rates which are constantly changing. Requiring every online seller to keep track of that - and exposing them to audit liability from all these different authorities, would not be beneficial to public policy either.

[shalmanese]

5. Suppose you get so many orders from France that you figure it makes more sense logistically to bulk ship items to a central location in France and then drop ship from there with the French office merely acting as a forwarding location. Surely this is roughly equivalent to the previous scenario.

6. Since demand from France is fairly predictable, you figure you can actually ship based on anticipated sales, shortening fulfillment time. Surely this is roughly equivalent to the previous scenario.

7. Since you realize the drop ship location is fairly close to many of your customers, you can offer a saving to the customer by allowing them to physically travel to the warehouse and collect their goods. Surely this is roughly equivalent to the previous scenario.

8. Since customers are frequently coming to pick up their orders, you realize you can neatly and logically order the items in your warehouse to facilitate easy retrieval of pickup orders. Surely this is roughly equivalent to the previous scenario.

9. Since people are coming into the warehouse, it makes no sense to force them to do the purchasing online when they could just wander through the warehouse, decide what they want and purchase right there and then. Surely this is roughly equivalent to the previous scenario.

10. Suppose you now figure out that it makes sense to advertise this warehouse space since people in the surrounding area could come in, wander through the aisles and make impulse purchases. Also, investing money in improving the physical appearance of the warehouse will also draw people in. Surely this is roughly equivalent to the previous scenario.

11. You figure out that it makes sense to place multiple warehouses in different places around the country since this will attract more people from that local area. Surely this is roughly equivalent to the previous scenario.

12. Given how logistically complicated this has become, you hire an entire French team who operate largely independently of the US parent office and manage the roll out of these fulfillment centers (they call them le store). Surely, but surely, this is roughly equivalent to the previous scenario!

[yummyfajitas]

5 is different from 4, because your agents in 5 are located in France. Thus, they must obey French law. Further, they are consuming French services (police, roads, fire), so it makes sense to tax them to pay for such services.

(This isn't getting into the question of whether your taxes are really buying those services (in the US, they are mostly redistributed to other people), but that's a separate matter.)

[CWuestefeld]

Congratulations, you've invented the slippery slope.

[bambax]

The vendor never has to "pay" any sales tax: they collect it (my initial wording was wrong).

It's the buyer who has to pay sales tax. Being French, if I buy anything anywhere in the world, I owe the French government 20% of the amount of that purchase; if I'm able to hide my purchase in my suitcase, then I'm evading taxes, but I'm certainly never exempt.

The crux of the matter is whether Amazon is an "out of state seller": is it? When an Illinois resident buys something from Amazon from the comfort of their own home in Illinois, they are not importing something from another state.

Amazon contends they are, though; they may have a case but I very much believe they will lose in the end.

[cgrand-net]

> if I buy anything anywhere in the world, I owe the French government 20% of the amount of that purchase; if I'm able to hide my purchase in my suitcase, then I'm evading taxes, but I'm certainly never exempt.

You are not evading the system, there is an exception:

http://www.douane.gouv.fr/page.asp?id=533

Sont exonérés de la TVA [...] les biens contenus dans les bagages personnels des voyageurs en provenance de pays extérieurs à l’Union européenne.

(Goods contained in personal luggages of travelers coming from a non-EU country are exempted from VAT.)

[Vivtek]

When an Illinois resident buys something from Amazon from the comfort of their own home in Illinois, they are not importing something from another state.

Yes, legally they are. That is exactly what they're doing. We don't call it imports simply because we have a federal law that prohibits any non-federal regulation of interstate trade (i.e., imports) and there is no such law beyond the boundaries of the United States, but there's a reason we're called the United States. In an important sense, we're 50 different countries that have delegated most of their law to a federation.

[repiret]

In the United States, the vendor always pays the sales tax. Its customary for the vendor to itemize it separately on their customer's bill and exclude it from listed prices, but its the vendor who has to write a check to the government, the vendor who has reporting obligations to the tax authorities, and the vendor who gets in trouble if it isn't paid. I suspect its the same in France, but I don't really know.

[bambax]

The vendor collects the sales tax from the customer, and then (a month later) reports it to the government and pays the government back; but the only sales taxes that a vendor owes are the ones it has collected (or, in case of a dispute with the govt, the ones it is assumed to have collected).

If for example a customer buys but does not pay, then the sales tax associated with that purchase is not owed.

[thematt]

It's not that the purchase is exempt from tax, it's that Amazon isn't responsible for collecting it. The onus falls on the consumer to pay the sales tax directly to the state. Nobody does though, which is why they want Amazon to collect it.

If you're looking for justification, refer to the Supreme Court ruling that established it, which said that requiring these companies to comply with the varied sales tax rules and regulations of 45 states and some 7,500 different local taxing jurisdictions would burden interstate commerce.

[bambax]

Why don't they fight in court then?

Cutting their affiliates lose looks really low; they should stand for them instead.

[dexen]

Perhaps because fighting in court is costly and long, while asking your affiliates to petition their representatives to change law may be cheaper and quicker? And suggesting to the representatives jobs will be lost (still a big no-no in today's post-crisis mentality)?

Never mind the tax paid to the state actually goes into improvement of local infrastructure, services etc.

[yummyfajitas]

They probably will. They already have in other states.

http://techcrunch.com/2009/01/13/new-york-court-dismisses-am...

I'm not a lawyer, but I believe they cannot file a lawsuit until they are actually harmed (i.e., after the law takes effect).

[chopsueyar]

http://en.wikipedia.org/wiki/Locus_standi

[wheels]

Amazon's competitors in France also pay tax. That's the difference.

The issue here is that the law is such that out of state vendors don't have to pay tax; Illinois is just trying to jigger a way to make Amazon have to pay anyway, because Amazon sells lots of stuff and they'd like the tax revenue. But that effectively gives their competitors a 10% pricing advantage, not to mention making accounting much more expensive.

[tsycho]

Well, to be fair to the physical retailers, all online retailers should pay sales tax since you are giving them a 10% pricing advantage otherwise.

Amazon (and others) are exploiting a tax loophole, and the state governments are trying to stop that. They should, however, make such rules for all retailers, and not target Amazon specifically (I am not sure if they are doing so, but the parent comment makes it seem like that).

[CWuestefeld]

You're making a big assumption, that it's Amazon that's exploiting a loophole, rather than the the State being exploitative. You're assuming that the State has some inherent right to grab whatever money it can get its hands on. Can you explain why a retailer that's not in the state ought to be on the hook for these taxes?

In other words, rather than simply assuming that states have essentially unlimited authority to tax (subject to their courts and legislatures), is there a point where the authority to tax ends? At one extreme, I would submit that they can't tax me, sitting here in NJ. (However, I once had the State of Connecticut contact me, forcing me to prove to them that I didn't need to pay them income tax, so it appears to me that States do believe that their power is unlimited). On the other hand, few would argue that, say, a local shop ought to be exempt. Where do we draw the line?

[sharth]

Technically, it's the customer who is cheating the state. If I was to buy a product on amazon and not pay sales tax on it, I am supposed to pay a use tax on it at the end of the year.

[isleyaardvark]

How so? If I go to New Jersey/France/Mars and buy a candy bar, my home state has no business adding a sales tax. If I write a letter ordering a candy bar delivered from New Jersey/France/Mars, they have no business adding a sales tax. So why tax an order made online from out-of-state? The state is overreaching it's bounds, and that's why Amazon's letter says it is unconstitutional.

[shareme]

No, read the damn paper..Illinois is bankrupt they are asking for sales taxes to get them out of debt..

[dpatru]

Illinois should cut its spending.

[logicalmind]

Even if that spending is money they are contractually obligated to pay based on contracts they made years ago?

[ultrasaurus]

Taxpayers aren't prisoners, so there is some maximum rate you can get out of people before they start leaving. I doubt it's the case, but there is a non-zero chance that paying all their obligations are actually impossible.

It's interesting enforcing contracts when my local government can sign a contract that we'll pay pensions for the next 40 years in exchange for a service now (say education), but I can move away after consuming it (or simply never become productive and pay taxes).

[logicalmind]

Yes, the taxpayers can leave. But on the other side are the people providing the service with whom the government has made these contracts.

Some people took these positions based on the deferred compensation. If that goes away, there will need to be upfront compensation. If neither of those happen you won't find many qualified people willing to take those jobs. Both sides will get screwed.

[btilly]

I can't find a justification why online retailers should be exempt from sales tax;

This justification is to be found in the US Constitution where authority over interstate commerce is granted to Congress. This leaves states with no legal authority over interstate commerce.

This reasoning is preposterous; the sales happens where the customer is, and that's where the tax is due. That's what will happen eventually; they are just buying time -- and not very elegantly.

In theory, yes. In practice, no.

Experience says that people don't voluntarily report or pay taxes on those sales to the state government. Furthermore state governments have proven unable to track down those sales without the cooperation of merchants. So if Amazon doesn't cooperate, those taxes don't get collected.

[yummyfajitas]

The issue is that Illinois has no right to issue laws governing the actions of people not located in Illinois.

Illinois is free to demand that people who are located in Illinois pay sales taxes on their out of state purchases. If it has probable cause for believing one of it's citizens is evading taxes, it can even file a subpoena with Amazon for sales records.

[baddox]

By that logic, it's certainly fair for your family to pay sales tax if you live in, say, Illinois. But isn't it also reasonable to leave one state for another because of sales tax?

[erikpukinskis]

They're not always in a different state. If you live in California, you pay sales tax on online purchases pretty much always.

[storborg]

That's because California has tax-hungry laws concerning what defines a "nexus" (a business's presence in the state). It's difficult for many companies to avoid creating a California presence, so they're stuck collecting California sales tax as if they were based there.

[Vivtek]

Doesn't every state have similar laws? Indiana does - yet I don't normally pay sales tax online, because most of the companies aren't based in Indiana, whereas online companies really do tend to be in California.

[storborg]

Lots of states, but not every state. California is also of particular importance because it's so big: nobody would care as much if Delaware had laws like this.

However, in California, even if you only have a physical presence in some remote part of northern CA, suddenly that affects your ability to sell to 37 million other people.

[3am]

I have firsthand experience in online retail and if California is 'tax hungry' for that reason, then every other state in the country is, also. If you have payroll in a state, you collect sales taxes for physical items shipping there.

[allwein]

Likewise, back when CDNow.com was it's own company it was located right outside of Philadelphia. Living in Pittsburgh, having to pay sales tax when buying from CDNow was always a consideration when deciding to buy music from them or someone else.

[chopsueyar]

Does Amazon France pay for their employees' health insurance? What percentage of their paycheck has social security and medicare taken out?