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Wednesday, November 21, 2012

Massachusetts prods Amazon to collect sales taxes and kill affiliate program



Michael B. Farrell writes in the Boston Globe, State prods Amazon to collect sales taxes:
The Patrick administration is pressing Amazon.com Inc. to begin collecting sales taxes from Massachusetts customers as early as next year, arguing it is no longer exempt under federal law from charging the tax.

Under federal law, online retailers do not have to collect sales taxes from Massachusetts buyers unless the company has a physical presence, such as an office or store, in the state. But officials in the administration of Governor Deval Patrick contend that Amazon’s purchase of a North Reading technology firm, Kiva Systems, earlier this year, as well as its ongoing efforts to recruit engineers for a new office in Cambridge, establish the kind of physical presence necessary to collect the 6.25 percent sales tax.

The state government lost out on an estimated $387 million in 2011 from Massachusetts residents buying products tax-free from online retailers, according to the Massachusetts Main Street Fairness Coalition, an association of retailers, unions and local officials.



USE TAX: Honest tax paying citizens already pay


The article fails to mention that Massachusetts residents are required to pay a Use Tax on out out state purchases.
The Massachusetts use tax is 6.25 percent of the sales price or rental charge on tangible personal property 1 (including phone and mail order items or items purchased over the Internet) or certain telecommunications services 2 on which no sales tax, or a sales tax rate less than the 6.25 percent Massachusetts rate, was paid and which is to be used, stored or consumed in the Commonwealth. The use tax, unlike the sales tax, generally is paid directly to the Commonwealth by the purchaser.
While many do not, some do.




WHAT ABOUT SMALL BUSINESS: Amazon Tax Will Hurt Small Business


The article also fails to mention the strong probability that if Massachusetts forces Amazon to begin collecting sales taxes from Massachusetts customers, Amazon will most likely immediately end it's affiliate program for Massachusetts residents.




LEARN FROM HISTORY: Look at other states first


It's happened before:

Amazon ended affiliate program in Illinois:
It got overshadowed by recent events both foreign and domestic, but last week Governor Pat Quinn (D, IL) signed legislation declaring that in-state affiliates for online sellers count as ‘a physical presence’ in Illinois, thus theoretically allowing the state to require those online sellers to collect sales tax information. This is usually called the ‘Amazon tax*,’ as it is largely aimed at Amazon.com**. This is a long-standing dispute (H/T: Instapundit), and usually ends with the companies in question ending their affiliate programs: Illinois businesses and individuals were however assured (by groups like the Illinois Retail Merchants Association) that there was no chance that Amazon.com would dare end its affiliate program for Illinois***.

Turns out that this was incorrect: as usual in these cases, Amazon.com (and Overstock.com) immediately closed down its affiliate program for Illinois (beginning April 15), thus making the issue moot. This means that no Illinois resident or company will receive a commission for sales – which means lost revenue, which means less taxable revenue for the state of Illinois (Amazon.com requires its affiliates to fill out 1099 forms, and the money that affiliates generate is subject to income tax).



Amazon to shut down California affiliates over new sales tax law:
Amazon's reaction has been predictable: the company sent a letter to its affiliates in the Golden State earlier in the day on Wednesday warning that the affiliate program may soon be cancelled there due to the impending state law. "We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors," Amazon wrote. "Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action."

The aforementioned "other states" include New York, Illinois, Rhode Island, and North Carolina, most of which have seen their own Amazon affiliate programs killed for exactly the same reason. (Edit: New York managed to keep its Amazon affiliate program, presumably because it's such a huge market.) And, as noted by The Tax Foundation, there are a handful of others—Arizona, Hawaii, Louisiana, Massachusetts, Minnesota, Mississippi, Missouri, New Mexico, Tennessee, Texas, and Vermont—that are considering passing similar "Amazon Tax" measures.

Not that the measures are necessarily helping much in terms of states collecting more tax revenue—Rhode Island General Treasurer Frank T. Caprio was recently quoted, saying, "The affiliate tax has hurt Rhode Island businesses and stifled their growth, as they’ve been shut out of some of the world’s largest marketplaces, and should be repealed immediately." FatWallet, which itself acts as a giant affiliate to Amazon and Overstock, ended up moving from Illinois to Wisconsin over the Illinois "Amazon Tax."



Affiliate cancelation letter: Thanks a Lot, Jerry Brown: Amazon Cancels California Contracts.



Disclosure: I'm a zealous Amazon.com affiliate. ;-)



3 comments:

  1. How about asking Amazon to prepare an itemized downloadable list of Massacchusetts taxable items that taxpayers can use to more easily pay the Use Tax.

    Make existing law easier to follow.

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  2. Steve,
    I am a Massachusetts based Tax Consultant and a tax writer/blogger who frequently writes and speaks on Amazon Taxes and the Federal Internet Tax legislation currently under consideration by the U.S. Congress. I just happened to come across your blog post a few minutes ago while viewing what’s been hitting the news wires as I prepare a post of my own for Cyber Monday.

    Anyway, I wanted to clarify a couple of things you mention or point to in your post. First, regarding the Boston Globe article – this article and the many related articles that scream that Amazon has now established a physical presence in Massachusetts – are simply not correct.

    This past summer I authored two posts on the “Amazon-Massachusetts” developments, in which I addressed the many media reports which were incorrectly reporting that Amazon’s expansion into Massachusetts would translate into a sales tax collection requirement for the company.

    While it’s true that last February, an Amazon software development subsidiary, a2z Development Center, Inc., opened a research facility in Cambridge Massachusetts, and that last spring, Amazon.com, Inc. acquired 100% of Kiva Systems, Inc., a Massachusetts based inventory movement robotics company, neither of these two Massachusetts operations would become part of Amazon’s U.S. retail entities – Amazon.com LLC or Amazon Digital Services, Inc. Nor would these entities act as agents for Amazon’s retail businesses. Because Massachusetts currently does not have a provision in its law which would automatically attribute nexus from one legal entity to another, neither a2Z Development or Kiva create sales tax nexus for Amazon.

    If you’re interested in my posts, here they are:
    “Massachusetts' Internet Sales Tax Legislation; Amazon Tax or SST Adoption? What Proposed Legislation in Massachusetts Will Really Do”: http://www.thestateandlocaltaxbuzz.com/2012/07/massachusetts-internet-sales-tax.html )
    “Amazon Sales Tax Nexus in Massachusetts? (Absolutely Not!)”:http://www.salestaxsupport.com/blogs/sales-use-tax/internet-tax-ecommerce/amazon-sales-tax-nexus-in-ma-massachusett/)

    You also mention that if Massachusetts forces Amazon to start collecting sales tax (and again, under current law, Massachusetts has no grounds to require them to do so), that Amazon will simply terminate its contract with its Massachusetts marketing affiliates. While you’re correct that Amazon has done this in other states, like Illinois. The states in which Amazon took this action had enacted an “Amazon Law” which including web-linking language. That is, these other state’s laws state that contracting with an in-state marketing affiliate that posts a web-link (or banner or widget) on their website which links to an out-of-state retailer’s website creates nexus (the necessary connection or tie that must exist before a state can force an out-of-state retailer to collect their sales tax). Massachusetts does not have a web-linking “Amazon Law” on its books and thus, Amazon would have no need to sever its Massachusetts marketing affiliate contracts.

    Anyway, just my two-cents.

    ReplyDelete
    Replies
    1. Thanks Sylvia! Great comments.

      Delete