December 2, 2013

Tax-Free Internet Sales May Finally Be a Thing of the Past

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Amazon CEO Jeff Bezos announced on 60 Minutes last night that Amazon would someday make home deliveries via propeller-driven drones. Will this actually ever happen? I don’t know, but I suspect that Bezos doesn’t really care. Today, everyone is talking about Amazon drones, which means they’re talking about Amazon. Mission accomplished.

However, it turns out that today brings much more important news for online retailers. Tacocopters may make for amusing conversation, but sales taxes mean a lot more for the bottom line:

The Supreme Court on Monday declined to get involved in state efforts to force online retailers such as Amazon.com to collect sales tax from customers even in places where the companies do not have a physical presence….All but five states impose sales taxes, and an increasing number have passed legislation to force online retailers such as Overstock and eBay to begin collecting those taxes from customers.

….As is its custom, the court gave no explanation for turning down petitions from Amazon and Overstock.com to review a decision by New York’s highest court to uphold that state’s 2008 law requiring sales tax collections.

Seattle-based Amazon has no offices, distribution centers or workforce in New York. But the New York Court of Appeals said Amazon’s relationship with third-party affiliates in the state that receive commissions for sending Web traffic its way satisfied the “substantial nexus” necessary to force the company to collect taxes.

Happy Cyber Monday! As it happens, Amazon pretty much caved in on this issue a year ago, but this is still an important non-ruling. It almost certainly means that every other state will fairly quickly follow the lead of California and New York, and it means that every other online retailer will have to start collecting state sales taxes too.

At a guess, this might also spur Congress to pass national legislation governing online sales taxes. Republicans have resisted this since it would effectively raise taxes on consumers, but if that’s going to happen anyway then it might be worthwhile to at least harmonize the treatment of companies across all 50 states. It could even be a chance to put some modest limits on internet sales taxes, which might actually count as a tax reduction in Republican eyes. Who knows? But certainly national legislation has a slightly brighter outlook today than it did yesterday.

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