Should All Amazon Shoppers Pay Sales Tax?

I almost participated in a boycott of Amazon.com. This was almost a decade ago when Amazon filed for a patent for its 1-Click ordering process. The patent was struck down in 2007 but I didn’t notice. In the face of Amazon’s low prices and, in my state, exemption from sales tax, my convictions didn’t stand a chance.

Today, Amazon is still my retailer of choice. In almost all cases, anything I could buy elsewhere costs less on Amazon if it is available. I decided last year to begin paying the annual $79 fee for Amazon Prime which provides me with free two-day shipping for almost all products and one-day shipping for $3.99.

I have also added the Amazon application to my new cell phone. Now when I’m shopping without advance preparation, I can scan the UPC bar code and view the product information, including price, specifications, and reviews, if Amazon sells the same item. Often, if the price is lower and I can wait another day or two before using the product, I opt to save money and buy from Amazon. I can do this using the formerly-avoided 1-Click ordering from my phone while I am in the store offering the same product for a higher price.

Part of the appeal is that in New Jersey, the state in which I live and the shipping destination for most of the products I buy, I do not need to pay sales tax on internet-based purchases from Amazon. Most states do not require sales tax if the company does not have a retail presence in the state. Amazon in New Jersey falls into that category. If you live in New Jersey or in 44 other states, you do not have to pay sales tax when you purchase and receive items from Amazon. New York shoppers once received the same benefit, but the state, in need of money, has at least temporarily begun requiring sales tax payments.

If you live in Alaska, Delaware, Montana, New Hampshire, or Oregon, Amazon’s practices should not matter because you would not pay sales tax regardless of whether the company has a retail presence.

Theoretically, in states that do require sales tax, you are supposed to pay a “use tax” when you file your state tax return to cover any purchases for which you did not pay sales tax to your state. This would include out-of-state purchases as well as online shopping. In the non-scientific sampling I’ve done, I have not found anyone who has offered to pay more taxes to their state through the use tax.

This seems, like the patent filing, to be a way for Amazon to slip through the cracks of the law in order to hold an unfair advantage over competing retailers. Even Target.com, operated by Amazon, charges sales tax in most states. The two sides of the argument are succinct:

If Amazon does not have a retail presence — physical, brick-and-mortar offices for the retail arm of the company — in any state, the law says it does not need to pay sales tax in that state.
Even if Amazon doesn’t have a retail presence in a state, it most likely has offices for one of its many subsidiaries in that state. Those subsidiaries require public services like police and fire protection, and should therefore pay taxes to support those services.

Amazon is getting around the sales tax requirement by compartmentalizing every aspect of its business into subsidiaries. Almost all large companies do the same thing in order to benefit from the most business-friendly laws, including those pertaining to taxes.

Here is the real problem, however. Online commerce has existed for over a decade and there still hasn’t been any great progress in determining how best to govern that activity. Until there are more uniform rules, Amazon will do whatever it can to avoid paying taxes, I will shop at Amazon to avoid paying taxes (although it is often the lowest-priced competitor anyway), and out-of-state friends will continue to ship their packages directly to my address to avoid paying taxes.

Do other stores simply pass on the cost of their portion of the sales tax onto their customers? The full tax sales bill to states are paid half by the retailer and half by the customer. When you pay $0.70 in sales tax for a $9.99 DVD, the store pays $0.70 cents, too. Perhaps one reason Amazon can keep its prices lower is that stores simply increase their price of a DVD by $0.70 to compensate for their portion of the sales tax.

Should all Amazon shoppers pay sales tax? Money being spent on purchases from Amazon is money that is not being spent in local stores. Those states with sales tax laws are losing out on income, income that is much needed in a recession and when states are having budgetary shortfalls. These shortfalls are recovered through increased income taxes, property taxes, and perhaps roadway tolls, with a larger burden on individual taxpayers. But yet, tax-exempt purchases could be keeping prices down, encouraging spending and some level of economic growth.

Do you pay taxes for your Amazon purchases? If you have never paid sales taxes for products you buy from Amazon but your state’s law changed to require you to pay sales tax, would your behavior change? I do not think the addition of a sales tax on Amazon purchases in New Jersey would be enough to encourage me to buy more products in brick-and-mortar locations. My only considerations and total price and convenience.

Sorry, Shoppers, but Why Can’t Amazon Collect More Tax?, Randall Stross, New York Times, December 26, 2009