States Rack Up
Victories in Bids to Collect Online Sales Taxes
C. Vock, Staff Writer
Manzano, Jr., delivers an arriving pallet of goods at an
Amazon fulfillment center in Phoenix. Amazon began
collecting sales taxes from Arizona customers in
February, as states are increasing pressure on retailers
to collect the lost revenue. (AP Photo/Ross D. Franklin)
of shopping online without paying sales taxes may be
ending. States are cracking down and a nationwide system
for collecting sales tax on online sales may be coming
developments in recent weeks show how quickly the
landscape is changing on what has long been an important
but elusive goal for state officials: collecting sales
tax from online retailers.
and localities could reap as much as $11 billion a year,
according to one study. Internet shoppers are already
supposed to pay the money on their own but rarely do.
officials and local retailers cheered when New York
state’s “Amazon tax,” designed to collect taxes on
purchases at Amazon.com and similar sites, survived a
challenge last month in the state’s highest court. It
was a significant victory, especially after courts
struck down similar laws in Colorado, Illinois and North
itself is shifting strategies. Facing both pressure from
states and new business demands, the company is
collecting sales taxes on sales to customers from nine
states, and it will add another seven states this year.
By 2014, it will collect sales tax from half of its
cases, Amazon agreed to collect taxes in states where it
is building new facilities, and the agreements do not
apply to other online retailers.
is backing efforts to set up a national system for
collecting online sales taxes, which could simplify the
process for the company and ensure its competitors have
to collect the taxes, too.
of the idea scored a major victory last month, when the
U.S. Senate, in a 75-24 advisory vote, backed a plan to
let states collect sales taxes on online purchases.
states this year built major legislation on the
assumption that Congress would soon pass a nationwide
system for online sales tax collection. Missouri would
use the money for tax cuts, while both Maryland and
Virginia included it in the mix of new funding for
deals and legislation and resolutions that are passing
in states are really sounding the trumpet to tell
Congress loud and clear that this is a problem that
needs to be fixed on the congressional level as soon as
possible,” said Max Behlke, manager of state and
federal affairs for the National Conference of State
have tried to collect sales taxes on online purchases
since the infancy of the Internet. But legal, logistical
and political problems blocked their way.
before the invention of the Internet, courts blocked
state attempts to collect sales taxes on goods sold by
out-of-state vendors, because the Constitution says only
Congress has the power to regulate interstate commerce.
1967 case dealing with mail-order purchases, the U.S.
Supreme Court said companies had to have a physical
presence in a state’s borders for that state to impose
taxes on its purchases. That rule remains in effect
is still hotly debated. The New York Court of Appeals,
the state’s top court, ruled recently that the
state’s 2008 law requiring all online retailers to
collect a sales tax stands.
court said New York could tax purchases from Amazon and
Overstock, because both companies had in-state
affiliates that they paid to promote their companies.
the court added, Amazon and Overstock do not pay the
taxes themselves, but their in-state customers do.
“They are collecting taxes that are unquestionably
due, which are exceedingly difficult to collect from the
individual purchasers themselves, and as to which there
is no risk of multiple taxation,” the court wrote.
judge dissented, arguing that the companies did not have
enough of a physical presence in New York to be subject
to its sales tax law. Amazon and Overstock, he said,
were acting like companies that advertised in local
newspapers when they recruited local affiliates.
Although they were paid, the website owners were not
promoting Amazon and Overstock as sales agents would.
checks her sales receipt after checking out at Walmart
in Vancouver, Wash. Walmart is one of 1,900 retailers to
voluntarily collect sales tax on its online sales in an
effort to “streamline” the process. (AP Photo/Rick
before Congress, called the Marketplace Fairness Act,
would set up a national system for collecting online
sales taxes. Individual states would choose whether they
wanted to join.
could join in one of two ways. The first option would be
to join an existing collaboration among states and
retailers to “streamline” sales taxes across state
borders. So far, 24 have signed up for the project,
overseen by the Streamlined Sales Tax Governing Board.
More than 1,900 retailers — including Walmart and J.C.
Penney — already voluntarily collect sales taxes from
online sales.. Their customers have paid states and
localities $1.2 billion since October 2005. North
Carolina, Ohio and Oklahoma have each collected more
than $100 million.
second option for states would be to simplify tax
collection and auditing on their own, and meet other
requirements, to start collecting online sales taxes.
a states’ rights bill that allows states to decide
these matters,” said Joshua Baca, spokesman for
Alliance for Main Street Fairness, which represents
retailers. “When the bill becomes law… if states
don’t want to do anything, they don’t have to.”
said the flurry of activity in states helped show
Congress that a federal law is needed. Even though more
of Amazon’s customers are paying sales taxes,
customers for other online sellers may not be.
Brick-and-mortar stores have no choice but to collect
you’re a retailer, you hate these taxes. You want
consumers to come in and spend more money with us,” he
said. “But we recognize that there are goods and
services that come from that, and if you’re going to
have taxes, all retailers should be treated equally.”
Joseph Henchman, a vice president of the Tax Foundation,
a Washington, D.C. research group which opposed New
York’s Amazon tax in court, said he worries about the
lack of details in the federal legislation. The
proposal, which is only six pages long, does not include
any way to enforce the law, likely leaving it up to
state courts to handle disputes.
legislation, Henchman said, is also short on specifics
for the definition of key terms, which could prevent
ensuring that online sellers have the same rules from
state to state.
one state calls clothing, another state has to call
clothing. What one state calls food, another state has
to call food. This is a lot harder than it sounds,” he
said. Some states treat soft drinks as food, for
example, but others impose a tax on sugary drinks.
problem is, in fact, what the streaming board has been
working on for years. Henchman said the project has
crafted common definitions and administrative processes,
but the number of jurisdictions that impose varying
sales taxes continues to climb, complicating the task.
In the last decade, more than 2,000 new taxing districts
have been created, bringing the number nationally to
businesses would barely even know the difference, said
Craig Johnson, the governing board’s executive
director. States update the information in a database,
and the free tax software automatically computes how
much tax is owed. Businesses send checks to states, and
the states parcel out the money to local governments.
also warned that states often overestimate the amount of
money they will get from online sales taxes, noting that
tax receipts from California were well short of
projections from a national study often touted by
proponents of proposals to boost the collection of
online sales taxes.
of the federal law say they think Congress will pass a
law soon, especially after the lopsided vote in the
Senate. But nothing is certain on Capitol Hill.
don’t think we’ve ever been this close before,”
said Behlke from NCSL. He said local businesses have
been particularly vocal in saying a fair national system
is needed to protect jobs close to home. “That message
is really resonating with people and, as a result,
resonating with their elected officials.”