Practical Ecommerce

Amazon Versus States: A Sales Tax Roundup

For years states have fought Amazon.com to force the ecommerce giant to collect sales tax — the states, desperately looking for cash, versus Amazon, vehemently defending its practices as well as its livelihood.

Amazon collects sales tax only in the five states where it has a physical presence (offices or distribution centers): Kansas, Kentucky, New York, North Dakota and Washington. In 1992, the Supreme Court ruled — in the Quill catalog case — that a state can compel companies to collect sales tax only if they have a physical presence — called a “nexus” — in the state.

Now several states are trying to get around the ruling by expanding the definition of physical presence to include affiliate partners. In response, Amazon has eliminated its affiliate programs in several states.

Here is a roundup of efforts by the states to collect sales taxes from Internet retailers. The states’ initiatives are aimed, mainly, at larger merchants and we’ve described those large-company limitations, as we are aware of them. We’ve also addressed the responses by Amazon to the various initiatives.

Roundup of State Sales Tax Initiatives

Arkansas. In April 2011, Gov. Beebe signed a law imposing tax collection responsibilities on Internet retailers with Arkansas affiliates and more than $10,000 a year in sales from state residents. The law will go into effect in late summer.

California. In 2009, state lawmakers passed sales tax legislation, but the bill was vetoed. Recently, in reaction to pending legislation over the taxation of Internet purchases, Amazon threatened to sever ties with 10,000 California affiliates.

Colorado. In 2010, the state legislature passed a law requiring large online retailers either to collect sales tax or to provide the state with customer information. In response, Amazon closed its Colorado affiliates program. In January 2011, a federal judge effectively halted any income the state might receive from the law.

Connecticut. Legislation to impose Internet sales tax has been approved by the state’s legislative finance committee. The bill targets purchases shipped to Connecticut residents, if the online retailer has realized as little as $2,000 a year in sales from Connecticut-based referral sites. The bill now heads to the full state congress for debate, and possible passage.

Hawaii. In 2009, Amazon shut down its affiliates program as the state attempted to pass sales tax law. In March 2011, Hawaii lawmakers again introduced sales tax legislation, requiring online retailers with Hawaii affiliates either to collect sales tax or to provide the state with customer information.

Illinois. In March 2011, Gov. Quinn signed a law, called the Main Street Fairness Act, requiring any Internet retailer with Illinois affiliates to collect sales tax. The law applies to merchants with $10,000 in annual, statewide affiliate sales. Amazon closed its Illinois affiliates program.

Massachusetts. State lawmakers have introduced two bills imposing tax collection responsibilities on Internet retailers with state affiliates and more than $10,000 a year in sales from state residents.

Minnesota. In 2009, state lawmakers attempted to pass sales tax law for online retailers. In 2011, the governor recommended that affiliate nexus language be included in the proposed state budget. Lawmakers are considering online sales tax legislation.

Missouri. Two legislators have proposed joining the Streamlined Sales Tax Project to ensure that sales taxes are collected from online retailers. In addition, State lawmakers are considering replacing income tax with increased sales tax.

New Mexico. State lawmakers are considering a bill to establish affiliate nexus tax on online purchases.

New York. In 2008, New York passed a law requiring online retailers to collect sales tax on shipments to residents. Amazon challenged its legality, claiming the law was “invalid, illegal, and unconstitutional.” In January 2009, the lawsuit was tossed out of court. In November 2010, a New York appeals court reinstated the lawsuit, ruling 5-0 that the “dismissal of the entire complaint was premature.” Amazon continues to collect sales tax in the state.

North Carolina. In 2009, Amazon closed its affiliate program after the state enacted Internet sales tax legislation. In 2010, North Carolina demanded information on purchases made by state residents between 2003 and 2010. Amazon disclosed its own in-state sales information, but not customer-identity information. North Carolina took Amazon to court and lost.

Oklahoma. In 2010, the state enacted a sales tax law, requiring retailers who do not collect sales tax to provide notices to customers that sales taxes are due.

Rhode Island. In 2009, Amazon closed its affiliate program after the state enacted sales tax legislation establishing an affiliate nexus.

South Carolina. In April 2011, state legislators rejected a sales tax break for Amazon, which would have exempted Amazon from collecting sales taxes for five years if it provided at least 1,249 full-time jobs. In response, Amazon abandoned plans for opening a new distribution center.

South Dakota. In March 2011, the state enacted a sales tax law, similar to Oklahoma’s law, requiring retailers who do not collect sales tax to provide notices to customers that sales taxes are due.

Tennessee. Amazon has begun to hire for two distribution centers, after the previous governor’s administration promised Amazon would not have to collect sales tax based on the facilities. Current Governor Haslam has said he will honor the commitment.

Texas. In September 2010, Texas claimed Amazon owed $269 million in sales tax, after determining that a warehouse, owned by an Amazon subsidiary, established a physical presence in the state. In response, Amazon said it would close the facility and canceled plans to build another warehouse in the state. The Texas House has passed a bill to expand the definition of physical presence. The SEC is now looking into the dispute.

Vermont. In March 2011, the Vermont House passed a bill imposing tax collection responsibilities on Internet retailers with state affiliates and more than $10,000 a year in sales from state residents. The bill now moves to the Senate.

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Sig Ueland
Sig Ueland
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Comments ( 3 )

  1. Dan Boudreau May 5, 2011 Reply

    Thank you for this! Everyone selling online should read this article.

  2. John Mac Donald May 5, 2011 Reply

    Great post/article. I love Amazon and when they closed their affiliate program in NC I moved. I am again selling for Amazon, only now North Carolina gets no tax from me for any of my income as I closed all my businesses there.

  3. Sig Ueland May 11, 2011 Reply

    My pleasure! It’s quite a showdown.

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