States Try To Collect Online Retail Sales Tax

Last week, Illinois joined a handful of states that have passed laws requiring Amazon to collect sales tax. Amazon calls the legislation "unconstitutional." If you have wondered why books — or other products — on Amazon tend to be cheaper than at your local store, one reason is that absence of state sales tax. In other words, Amazon has had a competitive advantage. NPR's Robert Siegel talks with Janet Novack, the executive editor of Forbes, about the increasing number of states trying to collect taxes from Amazon transactions.

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ROBERT SIEGEL, host:

Amazon is fighting on another front: the tax front. Last week, Illinois joined a handful of states that have passed laws requiring Amazon to collect state sales taxes. Amazon calls the legislation unconstitutional.

If you have wondered why books or other products on Amazon tend to be cheaper than at your local store, one reason is the absence of state sales tax. In other words, Amazon has had a competitive advantage.

To explain all this, we're joined by Janet Novack now, executive editor at Forbes, who has been writing about this issue. Welcome to the program.

Ms. JANET NOVACK (Executive Editor, Forbes): Thank you.

SIEGEL: Tell us why Amazon has not had to charge sales tax in most states.

Ms. NOVACK: Well, back in 1992, in a decision called Quill, the Supreme Court ruled that a state could only require its sales tax to be collected if a retailer had a physical connection - they call it a nexus - to that state. And Amazon hasn't had a physical connection to most states.

SIEGEL: And since 1992, has Amazon craftily avoided having a nexus in lots of states?

Ms. NOVACK: Absolutely, absolutely. It has built its strategy around the advantage of not collecting sales taxes.

SIEGEL: States now are saying that they're losing lots of potential revenue at a time when they're stretched. And what's Amazon's line on that?

Ms. NOVACK: Amazon's line is: OK, get Congress to pass a national law that requires collection by everyone, and of course, we'll comply. But in the interim, we're not going to disadvantage ourselves by collecting.

SIEGEL: You mean like a national excise tax on Internet sales?

Ms. NOVACK: Well, or more a national law that says states can require their taxes to be collected if they simplify it.

SIEGEL: How much money do you think is at stake here? Have you been able to quantify how much a state could bring in by way of sales tax on Amazon purchases?

Ms. NOVACK: Well, Illinois, which just passed the law, thinks it's losing $170 million a year. Overall, the figures run up to about $20 billion a year. It's real money.

SIEGEL: Now, as you said, Janet Novack, the system that presently exists is based on a 1992 court decision. Can we even think back to the Internet in 1992? It's an infant in those days. Al Gore is talking about it and trying to wake up the country to it in 1992. Could that ruling anticipate the situation we're now in?

Ms. NOVACK: It couldn't anticipate it, but it has a similarity. It was based on catalog sales. So they said, well, if all you do is you take the orders over the phone, you mail in, you ship by FedEx or UPS your goods, then that's not enough of a connection between a merchant and a state for the state to say: Hey collect our tax.

SIEGEL: If indeed the number of states that adopt a sales tax, say, grows to a dozen or so, do you imagine Amazon reconfiguring its operation to avoid those states and to move to other places?

Ms. NOVACK: Well, it faces a problem on two fronts. One is this law that says if you pay marketing fees to other websites that are in our state, we want you to collect our sales tax. Now, New York passed the first such law, and Amazon is collecting sales tax for New York, but it's also challenging that law in court.

Meanwhile, any other state that follows, it has pulled all its marketing agreements from those states. So that's one front.

There's another front, which I think is actually more significant. Amazon is a $32-billion-a-year organization, and it is locating warehouse fulfillment centers all around the country. Well, it's hard to say there isn't something physical about a warehouse.

So Amazon has asked the states to agree that if it is - it puts a warehouse with warehouse jobs in their states, they won't require it to collect sales tax.

SIEGEL: Janet Novack, thanks for talking with us.

Ms. NOVACK: Thank you.

SIEGEL: Janet Novack is executive editor for Forbes, and we've been talking about the question of taxing sales by Amazon.

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