States, Alliance Target Amazon on Sales Tax Law

Big box stores like Walmart and Target are backing a group called Alliance for Main Street Fairness, which is spearheading efforts to change sales-tax laws in over a dozen states, including Texas and California. Originally organized by mom-and-pop stores, the Alliance now has the backing of Wal-Mart, Target, Best Buy Co., Home Depot Inc. and Sears Holdings Corp.

Their biggest strawman enemy is Amazon, which they characterize as one of the biggest beneficiaries of the 1992 Supreme Court decision, Quill v. North Dakota, which ruled that retailers are exempt from collecting sales taxes in states where they have no physical presence, or "nexus," such as a store, office, or warehouse. This has been the law of the land for nearly two decades now, so it is really the Alliance that is causing the fuss, not Amazon. And of course states, heavily in the red, are desperate for any new source of revenue they can conjure. (We should note that consumers are technically required to file a "use tax" payment in lieu of sales taxes when they make purchases from eCommerce companies without a nexus in the state; don't hold your breath waiting for states to try to enforce that "flip side" of the Supreme Court decision...).

Last October, Texas sent a $269 million bill to Amazon for four years’ worth of taxes, citing Amazon’s Texas warehouse, which is owned by a subsidiary (presumably one that is independent of the parent company). In South Carolina, Gov. Nikki Haley is reconsidering an arrangement by her predecessor to allow Amazon to set up a warehouse in the state but exempt it from collecting sales taxes. After all, the wage taxes paid by employees is a major incentive to the state to forego the sales tax revenue.

Last week, Illinois passed a law forcing online retailers to collect sales tax if they have local affiliates in the state. New York, Rhode Island and North Carolina have adopted similar laws, and New Mexico, Minnesota and Vermont are considering such legislation. After Amazon threatened to terminate its affiliate programs in California and Hawaii, governors in both states vetoed similar bills. The California Legislature is trying again.

Amazon is standing firm, saying it will terminate relationships with affiliates in states that pass laws that contradict Quill V. North Dakota.