The difficulty of adapting state-based sales taxes to multi-state or international online companies has long been a contentious issue, one to which Amazon, one of the largest online shopping sites in the world, is no stranger. Initially, Amazon did not collect sales tax from shoppers in states in which the company did not have a physical presence, taking advantage of the 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota. Instead, shoppers themselves were supposed to comply with their state and local tax regulations by declaring the applicable Use Tax each time they filed with their states. In reality, however, most online shoppers failed to do so accurately, if at all.
This led to political and judicial controversy as Amazon and its rivals increased their offerings, enabling consumers to shop for more and more items effectively tax-free, depriving states of millions in sales tax revenue and creating unfair competition for local companies which could not avoid collecting the tax. Over the past several years, however, state laws and Amazon’s growing physical distribution presence significantly decreased the number of states in which the company did not collect sales tax. And if you’re in one of the remaining states where sales tax still isn’t collected, Amazon’s latest announcement is no April Fools‘ joke.
According to a report Friday from CNBC, Amazon will begin collecting sales tax nationwide starting April 1, 2017. Well, almost. Amazon’s announcement means that the company will collect and remit sales taxes on applicable purchases in all states which have a sales tax, even if Amazon doesn’t have a physical presence in that state. This means that if you live in one of the five states without a sales tax — Alaska, Delaware, Montana, New Hampshire, or Oregon — nothing changes. This also means that if you buy items from Amazon which are not subject to sales tax in your state, such as clothing in Pennsylvania, then you also won’t see taxes on your Amazon invoice.
Technically, Nothing Has Changed
With Amazon poised to begin collecting taxes in all U.S. states which have a sales tax, it seems at first that this is big news. The total price of items purchased from Amazon will increase, and now be more competitive with local retailers who have previously been subject to collecting sales tax.
But remember that thing called Use Tax from earlier? Technically, consumers were supposed to be paying taxes on all of their purchases all along. In states with sales taxes, those taxes are legally due regardless of where you purchase the item, it’s just that the consumers themselves are obligated to report and pay them after the fact. Now, Amazon is stepping in to take on that responsibility and the practical effect is that states will see an increase in tax revenue while your wallet gets a bit lighter.
Expect to see other major online retailers follow Amazon as they discover that voluntary tax collection is preferable to drawing the ire of state legislatures.
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