Amazon holding out against state sales tax

At the annual Amazon shareholder meeting, Jeff Bezos said Amazon is not backing down

Amazon has no plans to back down against the nexus tax legislation that’s popping up in states across the country. At least that was the sentiment that CEO Jeff Bezos conveyed at Amazon’s annual shareholder meeting in Seattle, according to a report.

“We think our position is a good one, and we’ll stick with that,” said Bezos, who shrugged off concerns about the possible hit Amazon would take if it had to compete with traditional brick-and-mortar stores by collecting sales tax. Bezos explained that Amazon currently does half of its business in areas that require it to collect sales tax.

Discussions of Amazon’s future in a world where it’s forced to collect sales taxes for online transactions have been heating up in recent weeks as more states jump onboard. Last week, the California state Assembly approved AB 155, also known as the “Amazon tax” bill, which would force online retailers with in-state affiliates to collect sales tax from consumers. The approval puts the bill one major step closer to passage in California, but some are wondering whether it will hurt California more than it will help, since it will drive out a number of affiliates and the thousands of jobs they bring with them.

In Illinois, for example, when the “Amazon tax” bill was passed, Amazon responded by simply cutting ties with all 9,000 of its Illinois-based affiliates. Those affiliates generated $611 million in advertising revenue in 2009 and tax revenue of $18 million. Now, with Amazon halting payments to those affiliates, the state of Illinois is likely to lose an estimated 25-30% of the tax revenue previously generated by those affiliates.

Amazon has already skipped out of several other states that have passed similar laws to collect sales tax, but how long can it keep that up? Simply avoiding sales tax doesn’t sound like a stellar business model, and when Bezos was asked where Amazon sees itself in ten years, he responded: “I believe we'll have the simplified sales-tax initiative passed,” and even saying that such legislation on a federal level would be good for Amazon.

Of course, while Amazon is out there dodging state sales tax, states are also looking for legal loopholes that will allow them to finally snag the elusive online retailer. In 1992, the Quill Corp v. North Dakota case ruled that companies were not obligated to collect sales taxes for states they didn’t have a presence in.  The state had argued that because so many residents of North Dakota were ordering Quill’s office supplies from the company’s mail-order catalogs, the state had a right to charge sales tax. North Dakota lost, since Quill Corp’s headquarters were in Delaware, which meant the company had no legal obligation to collect sales taxes for North Dakota.

Image source: NYTimes.com