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More Questions About Amazon.com and Sales Tax
June 25, 2008
 The
latest column by Wall Street Journal writer Lee Gomes takes a close look
at what he characterizes as "an audacious legal strategy Amazon.com has
used to avoid collecting sales tax" in some states where it has warehouses
or distribution centers.
The June 25 column -- "Will
Amazon Get a Visit From the Tax Man?" -- details the legal argument
made by Amazon.com that distribution facilities shipping Amazon.com orders to
customers are not under its control, but, rather, that they are the operations
of a company that is a wholly owned subsidiary of Amazon.com. As Gomes notes
in his column, courts have allowed companies to set up subsidiaries that are
legally separate entities, but they have also rejected "shell companies"
that exists solely to avoid tax obligations.
The question is important because the law is clear that if a company has a
physical presence in a state -- that is, nexus -- then it has a legal responsibility
to collect sales tax. The State
of Texas Comptroller's Office is currently investigating whether the presence
of an Amazon.com-run distribution facility in the Dallas suburb of Irving means
the online retailing giant has a physical presence in the state, and Gomes notes
in his column that "several tax experts say Amazon's legal case appears
to be a weak one." Amazon declined to respond to questions from Gomes for
his column regarding tax-related issues, including the sales volume of its warehouses.
Amazon.com's runs fulfillment facilities in Kentucky, Pennsylvania, Kansas,
Texas, Nevada, Delaware, Arizona, and Indiana. The company lists customer service
centers in North Dakota, West Virginia, and Washington. At present, Amazon only
collects sales tax in Kansas, Kentucky, North Dakota, and Washington. Delaware
does not charge sales tax.
Since June 1, Amazon.com has also been collecting sales tax in New York State,
following the state's passage of the Internet Sales Tax provision in the state
budget. The provision's approval came following a sustained lobbying effort
by the state's independent booksellers, ABA and the New Atlantic Independent
Booksellers Association, the Retail Council of New York State, and other state
independent businesses. Amazon.com
has mounted a legal challenge to the provision, as has Overstock.com. The
case, which will be heard in New York Supreme Court, is slated to begin on Monday,
July 7.
Gomes quotes in his column tax experts who call into question Amazon.com's
legal justification for a separate legal status for its distribution and shipping
facilities. They note that there are questions regarding whether the subsidiaries
Amazon.com has established "are really the independent units envisioned
by the tax law." The company's website simply notes that Amazon.com has
"offices, fulfillment centers, customer service centers, and software development
centers across North America, Europe, and Asia" and lists its fulfillment
centers. There is no mention of any subsidiaries, and, as reported by BetaNews,
Amazon.com was listed as the owner of its distribution center in Texas in 2006
and 2007, not its subsidiary, Amazon.com.kydc, Inc.
In addition, Gomes points out that the U.S. Supreme Court has ruled that a
company's presence in a state does not have to be a physical one for it to have
a responsibility to collect sales tax. "A close relationship with third-party
contractors in the state might be enough to constitute such a presence, the
top court has said." Gomes quotes Virginia tax commissioner Janie E. Bowen
regarding the question of how much control an out-of-state company has on the
operations of the in-state facility -- "if it looks like a shell company,
then we would take a serious look."
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While booksellers have won an important victory in New York State regarding
the equitable collection of sales tax, ABA continues to urge booksellers
in the 44 other states with sales tax to write, fax, or e-mail their governors
about this key issue. To make this communication easier, ABA has prepared
a template
letter that can be adapted and sent. The association asks businesses
that contact their governors to send a copy of the letter to ABA Public
Policy Liaison David Grogan at dave@bookweb.org.
Additionally, last month ABA COO Oren Teicher e-mailed the booksellers
in the 21 states with the largest projected budget deficits as reported
by the National Conference of State Legislators, to ask that anyone with
connections to a state legislator arrange a meeting with the legislator
regarding e-fairness.
"We will provide you with the necessary briefing, materials, and
information -- and, in some cases, might be able to participate in the
meeting with you," Teicher wrote. "It is imperative that we
maintain our momentum and keep the pressure on." ABA is also in the
process of preparing state-specific material to assist booksellers, available
upon request.
Booksellers who have a legislator in mind, or who would like to discuss
this issue further, are asked to contact Grogan at (800) 637-0037, ext.
6662, or via e-mail at dave@bookweb.org.
ABA staff can help walk interested booksellers through the process of
setting up a legislative meeting and answer any questions about the association's
Campaign for E-Fairness.
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Topics: News - Bookselling, Sales Tax Initiative, Internet Commerce,
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