Taxing Times for Amazon in Japan, U.S.

7/6/09

Taxes aren’t fun for anyone, but recent events have put online retail leviathan Amazon.com in a “Boston Tea Party” mood.  In the digital age, what does “physical presence,” the usual definition of a taxable company, really mean?

—Amazon may owe 14 billion yen, or about $119 million, to Japanese tax authorities according to the Japanese newspaper Asahi Shimbun. Accusations have been laid against Amazon since 2007, but now the situation is much more serious, with Japan accusing Amazon of making sales as though products bought in Japan are being purchased in the U.S. and are not subject to Japanese tax law—despite the presence of two Amazon affiliate companies in Japan. This, according to Japan, violates the rules of an American-Japanese tax treaty.  Amazon has so far rejected the claim and is negotiating a deal with Japanese authorities.

—Things stateside aren’t much better. Amazon may owe millions of dollars to Texas in uncollected sales tax, according to the Dallas Morning News, and is currently being investigated by the comptroller’s office. Since May, the state has been checking to see if Amazon broke the law allowing sales tax to be levied on companies with a physical presence in a state, but Texas didn’t even realize Amazon had a distribution center in the state until May. Ironically, Texas only began to investigate Amazon after Amazon cited the same law it may be breaking there as its defense in New York, where it brought suit against the state because of a new law charging the company for sales tax even though it had no physical presence in the state. In January, the suit was thrown out of court.

—Unhappy with the New York decision, Amazon announced in June the shutdown of its Amazon Associates program users in both North Carolina and Rhode Island after both states passed similar laws. Users of the program place ads for Amazon products on their website and receive a commission from Amazon for each product bought through the site.  Amazon called the law in Rhode Island “an unconstitutional tax collection scheme.”

And things may even get worse, according to the annual report released in April by Amazon that warns of similar investigations in the state of Kentucky, and in Britain, France, and Germany.

Eric Hal Schwartz was an intern in Xconomy's Seattle office. Follow @

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