Amazon’s Multi-State Sales Tax Battles are a Sideshow to the Real National Solution, and the Politicians Know It

Revenue-hungry state governments are licking their chops. Stuck with declining tax collections and soaring costs for services, they’re chasing around the country in a series of attempts to make it collect sales taxes.

That’s led some to wonder whether this high-tech round of whack-a-mole might be the front edge of a viral political movement that spreads across the country, wiping out tax-free shopping for millions of consumers and dragging down profit margins of and other e-retailers.

Fat chance.

The volley of lawsuits, rhetoric from fired-up tax collectors, and Amazon’s hardball response tactics are certainly entertaining to watch from afar. But any real resolution will almost certainly come from a much more boring, slow-moving effort to get state sales taxes on a common source code, and then change the federal laws.

Here’s why:

—It’s not clear that the newly popular approaches to wringing more sales taxes from Amazon customers are legally enforceable. That means potentially long court battles, such as one under way in New York.

—Amazon has shown no real signs of giving up its fight, even if that means cutting jobs. Some politicians are already knuckling under.

—Others are already working on a comprehensive fix. It’s the realistic vehicle for national online retail taxes, an approach that Amazon has supported, and everyone knows it.

The question here is not whether Amazon and other online retailers should have to pay taxes. It’s whether they have to collect taxes for the government.

In states where a retailer doesn’t have an office, the answer is generally no. The U.S. Supreme Court said so in a 1992 case, ruling that forcing a company to navigate the thousands of different little sales tax districts around the country just for the privilege of being in business was too difficult. Unconstitutionally difficult, in fact, because it would amount to a restriction of interstate commerce—an arena reserved for the feds.

So Amazon has historically collected sales taxes in only a handful of states, including Washington, where its headquarters are based.

Cue the economic meltdown, which has left state budgets in tatters just as more people are trying to get their hands on unemployment benefits, subsidized health care, job retraining, and the like. Given that backdrop, it’s no wonder that more politicians are trying to tap into the stream of taxes that their own residents are dodging when they buy stuff online.

Two approaches have emerged in recent years. New York and a few other states have used Amazon’s marketing tie-ins with other websites to claim that Amazon has a “nexus” in their state and therefore must submit sales tax collections.

In other states that have tried this, Amazon has simply cut off the affiliate programs that were at issue, or at least threatened to. In New York, however, Amazon is fighting the law in court (and collecting sales taxes from New York customers in the meantime).

In Texas, officials tried to grab more tax collections because Amazon had an affiliated shipping center in the state. This argument seems a bit more solid, since it revolves around brick-and-mortar facilities with real people who get an Amazon paycheck. Amazon argues that the shipping centers are not really part of the Amazon retailing business, but instead are sister shipping companies.

When that argument didn’t work in Texas, Amazon pulled out of its distribution center there, leading Texas Gov. Rick Perry to say the state probably messed up. In South Carolina and Tennessee, the company got promises that its shipping warehouses won’t make the retailer subject to collecting sales taxes.

Any lawsuits over these attempts to get more tax money will take a long time to wind their way through the court systems. That could discourage other states from joining the fun.

So what can be done? It’s clearly unfair that some shoppers aren’t paying sales taxes that they’re supposed to—and state efforts to get people to voluntarily fork over the money one at a time are predictably unsuccessful. Did you know there’s a form you’re supposed to fill out?

The long-simmering effort to fix the problem is known as the Streamlined Sales Tax project. This multi-state coordinating board is chock full of lawmakers, government tax analysts and business advisers trying to harmonize sales tax laws around the country, making administration more uniform and practical.

For the engineers at Amazon and other e-retailers, this amounts to converting a bunch of different and conflicting tax systems into one source code that someone could use to develop a tax-collecting program. And that would, in theory, make multistate sales-tax collection easy enough that Congress could change the law and allow the system to take effect.

Amazon didn’t respond to a request for comment in time for my deadline, but the company has looked favorably on this approach. In a letter to a California state senator, Amazon public policy VP Paul Misener called out the Streamlined Sales Tax effort and wrote that “a national resolution, involving tax simplification evenhandedly applied, is the legally permissible path for states to follow.”

Washington state has plenty of people who have been working for a long time on the project, including Russ Brubaker, a senior assistant director at the Washington state Revenue Department. He’s also the No. 2 officer at the national Streamlined Sales Tax group.

Brubaker says the attention being generated by the Amazon lawsuits and disputes isn’t actually harmful to the Streamlined effort—instead, he says, it could make the issue more pressing for the feds to solve.

“All of the efforts are aimed at the same goal which is to require remote sellers to collect taxes that are owed to the states,” Brubaker says. “The only caution I would have is that, when it’s time to turn and devote all the necessary effort to the federal legislation, that folks will need to do that. And I have every confidence that they will.”

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