Business and Economy Tax and Budget Transparency and Elections

Many States Grappling With Amazon Tax Issue

Tennessee is in the middle of the issue, but it is not alone, as was quickly evident in a meeting Monday with representatives of many of the 15 states in the Southern Legislative Conference.

It was formally billed as an e-commerce discussion, but the meeting at the Southern Legislative Conference in Memphis quickly became an discussion.

Amazon is becoming the focus of states wrestling with what to do about online sales where sales taxes go uncollected.

Tennessee is in the middle of the issue, but it is not alone, as was quickly evident in a meeting Monday with representatives of many of the 15 states in the SLC.

Dr. William F. Fox, director of economics at the University of Tennessee’s Center for Business and Economic Research, joined North Carolina’s secretary of Revenue, David W. Hoyle, in a presentation, and the message they brought was that Amazon has managed to create an uneven playing field and that Internet sales in general are having a huge impact on state revenues.

The Amazon story has become familiar. The giant online retailer wants to avoid collecting sales taxes despite its large distribution centers in Southern states, and states are left to either let Amazon get a pass on collecting taxes or pass laws to make them do so or take Amazon to court.

Still, Fox attempted to put Amazon in perspective.

“The Amazon part is only about 5 percent of e-commerce,” he said.

But Fox said his center’s research estimates the total of e-commerce is about $4 trillion, with about $46 billion in taxes due across the nation. He said most states surveyed are going to lose about $200 million or more this year due to uncollected taxes on e-commerce.

But the issue goes far beyond uncollected sales taxes, according to Fox. There was consistent growth in retail employment until about 2000, a rate of about 2 percent per year.

“Since 2002, retail employment in the U.S. has absolutely flattened out,” Fox said.

To put a sharper focus on it, Fox told lawmakers Walmart hires five workers for every million dollars in sales. Amazon hires one.

“As we move from people who buy on Main Street, and they move to buy from Amazon because of the tax subsidy that is implicit in the way we pay, we cost the economy four jobs,” he said.

“This is an issue important to the fiscal condition of our states, but it’s also important to the operation of our economy and one that is costing real jobs every day on Main Street in the U.S. So it is absolutely a fairness issue. But it is an economic issue.”

Tennessee, like several other states, finds itself in a bind with Amazon. The big online shopping site offers large numbers of jobs when it selects a site for one of its distribution centers. States find themselves having to grant special wishes — like not collecting the tax — in order to land those jobs, which are scarce and badly needed.

Fox figures the costs to the country because of e-commerce in general is 260,000 retail jobs.

“This is not a little issue. It’s not a small concern,” Fox said. “They don’t need a subsidy to operate. E-commerce associated with business-to-consumer sales this last year grew 18 percent, while commerce on Main Street essentially grew zero percent.”

But Fox’s criticism of Amazon’s effect paled in comparison to that in Hoyle’s presentation.

“My job is to administer and interpret the tax laws of North Carolina in a fair and equitable manner,” Hoyle said. “If everyone in North Carolina paid their fair share in taxes, we could cut taxes across the board.

“When we talk about fairness, it brings me to Amazon. And in my opinion, Amazon is a fairness issue. It’s particularly a fairness issue as it relates to bricks-and-mortar retailers who operate in North Carolina.”

Hoyle said small businesses are the ones getting hurt most by e-commerce. In his state, Hoyle said giving a company the break on sales tax collections gives them a 7 percent advantage.

“That 7 percent doesn’t go into the online retailer’s pocket, but it is a very competitive marketplace. It is certainly a helpful tool in competition. People shop for the best deal,” he said.

Hoyle said his state was operating on the premise that Congress would — or should — force collection of the sales taxes in a uniform approach.

“So far, we have not been very successful,” he said, although 29 online retailers in his state voluntarily collect and remit the tax, with expectations of collecting an estimated $15 million-$16 million this year.

Hoyle said he believed North Carolina had a good statute on the books for the taxes, and North Carolina conducted a sales tax audit of Amazon.

“This will tell you how smart these people are,” he said. “We asked not for the specific titles of books, DVDs or magazines. We asked for the price. But Amazon took that to say we were asking for specific titles sold to specific folks and that it violated the First Amendment of the Constitution. They filed suit against North Carolina. We lost the case.

“But we still say we do not want that information.”

The ACLU sided with Amazon. The case was actually settled.

Nevertheless, Hoyle referred to that fray as only “Round One” in the dispute and said that North Carolina is issuing another audit of Amazon. Hoyle said eventually a state will win and that when that happens it will be easier for other states to make Amazon collect.

“There could be penalties and interest assessed,” he said. “It could be a big, big problem for Amazon.”

He noted that Texas recently figured Amazon owed the state $269 million due to not collecting the taxes and sent Amazon a bill.

“Of course Amazon has refused to pay it. But it’s in court,” he said. “I’m pulling for Texas, because if Texas gets $269 million, ours will be somewhere in that vicinity.”

7 replies on “Many States Grappling With Amazon Tax Issue”

Great article Mike. Thanks for staying on top of this very important and far reaching issue. Keep up the great work!

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