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Originally Posted by elemenoP
I live in New York and I pay tax on all Amazon purchases. I thought this was because of the same law that California is now passing. I wonder why Amazon didn't just shut down the affiliates program in New York, as they did in other states, according to the article?
eP
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The U.S. Supreme Court ruled that businesses that don't have a physical presence in a state cannot be forced by that state to collect their taxes. This would be a violation of the inter-state commerce clause which is the jurisdiction of Congress. New York passed a law that basically said if a company like Amazon had "affiliates" who were located in the state then those independent businesses were deemed as part of the Amazon Corporation and thus Amazon would now be required to pay New York sales tax. Amazon thought this was beyond ridiculous. Amazon uses UPS to ship items, but just because UPS has a presence in a state it doesn't mean that now so does Amazon. Amazon also might hire a New York firm for an advertising campaign but that doesn't mean Amazon now has a New York presence. Paying some independent website to send them business shouldn't mean Amazon now has a presence in the state either. Ultimately, Amazon decided to sue the State of New York over this law, however they did start collecting the taxes, BUT they are putting those payments into an escrow account. They are NOT paying New York the tax unless the courts force them to do so. If I had to wager I'd bet on Amazon on this one.
Other states started passing similar laws as New York. Amazon could have charged tax to everyone in those states as well, but instead they took a different tack. They just canceled their affiliate programs with those states. No expensive lawsuits and no burdensome taxes. Problem solved.
The state of Tennessee might have a stronger argument in court. In their case they were going to tax Amazon because Amazon had two distribution centers in the state and plans to build three more. Tennessee said this was a "physical presence" so Amazon needed to charge sales tax. Amazon's position was the warehouses were not a "retail presence" that would require them to collect taxes from Tennesseans. I think Amazon may lose this case, and apparently so does Amazon, because they eventually decided it would just be best to cancel their expansion plans and leave the state of Tennessee all together. So Tennessee is losing thousands of jobs and millions in investment from Amazon.
If you set up a retail store in a state you have to collect taxes in that state. If you have a catalog, mail order, or internet business that doesn't reside in that state you shouldn't have to collect taxes. If you have a distribution center that could go either way -- but the state should treat all businesses the same (most multinationals with warehouses but no retail presence do NOT collect taxes for the state where they just have warehouses).
The smartest thing would be for the U.S. Congress to level the playing field. They could pass a law that would require companies to collect taxes for the state to which they are shipping the item. Each state would set its own tax rate and it wouldn't be too burdensome for a business to consult a table of 50 different tax rates.