Amazon scored an epic PR win when it debuted its idea for unmanned aircraft that deliver parcels on “60 Minutes” right at the start of the holiday shopping season. The story had everyone talking about Amazon and its Prime subscription service just in time for Cyber Monday. In fact, the drone story made so much noise that it nearly overshadowed another big story that day: the Supreme Court’s decision not to hear an appeal by Amazon.com and Overstock.com of the so-called “Amazon Law.”
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At least for the short term, the Amazon Law is going to be a much bigger issue for online retailers and consumers than the threat of an errant delivery drone dropping a book on your head. That’s because it affects the way in which taxes are levied on out-of-state Internet sales, potentially putting a dent in all of those Web-only deals holiday shoppers have come to love.
The Amazon Law, as it has come to be known, is a 2008 statute in New York that requires out-of-state Internet retailers with Web marketing affiliates in New York to collect New York sales tax on deliveries to New York residents. Previously, Internet retailers didn’t have to charge state and local sales taxes if they didn’t have a presence in the state in which the product was being purchased. Technically, shoppers were supposed to self-report and pay a use tax on these goods with their annual taxes, but very few ever did.
Legislation requiring online retailers to collect sales taxes from all customers, regardless of their location, passed the Senate in May. But it’s still sitting dormant in the House, leaving each state to navigate the issue on its own, as New York did. This created a confusing patchwork of tax laws for online retailers to navigate.
According to Carla Yrjanson, vice president of tax research and content for the indirect tax business at Thomson Reuters, there are currently 17 states across the U.S. that either already require retailers to collect sales taxes for online purchases or plan to do so in the future. To help make some sense of it all, Yrjanson and her team pulled together the map below, which serves as a kind of road map to online sales tax:
An estimated $82 billion in holiday retail sales are projected to occur online this season, according to Shop.org, a 15% increase over last year. That creates some very real stakes for cash-strapped states that are constantly looking for new ways to drive new revenues.
As Yrjanson notes, four of the states that have implemented Internet sales taxes did so just this year. Will more follow suit now that the online retailers’ challenge to the New York law was passed over by the Supreme Court? Will an increase in state-level sales taxes have a negative impact on ecommerce? Will drones eventually help online retailers avoid taxes altogether by dropping purchases from airborne “duty free” zones?
It remains to be seen, but it’s a safe bet that as more and more consumers bypass traditional brick-and-mortar retail outlets, sales taxes will find a way to follow them. Happy holiday shopping!
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