Posted by: Dan Bergeson | March 13, 2011

amazon.com owes Minnesota millions

OK, I understand that the state of Minnesota is staring down a $5 billion budget deficit over the next biennium and REALLY struggling to figure out how to resolve it. Ouch. I gather that there are many different scenarios for how to accomplish this gargantuan feat and that most of these are extremely partisan. That makes consensus pretty hard to achieve. At least harmoniously.

I’d like to offer a partial solution that doesn’t seem to be particularly partisan yet doesn’t appear to be on anyone’s radar at the moment.  There are e-commerce retailers (read websites that sell stuff) that are legally obliged to collect sales tax on their transactions with Minnesota customers (if they meet certain criteria) and are refusing to do so.  amazon.com is the biggest offender.

The law says that if online retailers have “nexus” in the state of Minnesota (or any other state), then they must collect and pay the appropriate state sales tax. Nexus is defined as having a physical presence in the state. Physical presence can be a bricks-and-mortar store, a warehouse or distribution facility, or a corps of “affiliates”. This definition has been challenged and upheld in federal court.  An affiliate is a person or company with a website that is commissioned to make a percentage of a sales transaction originating in a link from their website to the e-commerce retailer. amazon.com has thousands of “affiliates” in the state of Minnesota.

Many other e-commerce retailers are currently complying with this law in the state of Minnesota, including Walmart.com and BarnesandNoble.com. Is there any reason why amazon.com won’t comply?

Probably because compliance would cost them a competitive advantage and lower their profits. Well, boo-hoo.

While amazon.com is defying federal and state law, Minnesota taxpayers are losing out on  over $200 million in uncollected sales tax revenue. Are you kidding me? Why aren’t our legislators in St. Paul demanding that this stop?

Since 2008, 4 states (New York, Rhode Island, Colorado, and Illinois) have passed legislation to force amazon.com to comply with state tax law. Texas has sent amazon.com an invoice for $269 million in unpaid sales tax. What has the response been? amazon.com has sued the state of New York and lost. In Colorado, amazon.com has fired all of its affiliates (over 10,000 businesses). In Texas, amazon.com has announced that it will close its Dallas distribution facility and cancel it’s future plans for additional distribution facilities in the state. These moves are quite clearly examples of extortion.

In Minnesota in 2009, this issue was addressed in an omnibus tax bill, but the amendment regarding e-commerce sales tax was withdrawn under threat of a veto by then Governor Pawlenty. Who’s yer daddy, T-Paw?

Let’s get this situation back on track in Minnesota. We have a budget crisis that’s real and scary. Why would we not enforce laws on the books if it means additional revenue for the state and its taxpayers? Please let your legislators know that you support enforcing this state statute.

For more information, visit the American Booksellers Association website. You’ll find the history about this fight and templates for letters that you may wish to send to your elected officials.

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Responses

  1. If this is an issue of taxation, then the easiest way is generate lots of revenue would be to start taxing clothing purchases. This would generate a lot more revenue that affiliate sales. Also the clothing stores aren’t going to pull up and leave the state because they would have to start charging sales tax.

    I believe the Nexus law states that the state receiving the sales tax needs to provide something in return. A company such as Macys receives some benefits from the state of MN, I’m not sure what benefits MN would be providing a company like Amazon since they are not physically located here.

    The topic of taxing affiliate sales is a little more complicated than just collecting taxes. Amazon affiliates in New York lost their income and since they were self-employed, they did not receive unemployment benefits (and there was loss of income tax for New York).

    I’m not sure that placing an ad on a website is the same as owning a McDonald’s franchise. Sales tax is easy to calculate when a person walks into a physical store, even though there is still the challenge of the staying on top of changes in local sales tax for that location. It gets pretty complicated for a company such as Amazon to track everything. The company would need to track the location of the affiliate, the location of the purchaser, and the correct amount of sales tax in order to assess the correct sales tax. If a law were to pass in MN and in order for MN to receive sales tax, a company like Amazon would need track at the time of sale-address of the affiliate (make sure the person currently resides in MN) and address of purchaser (if the purchaser resides in MN and exact location in MN because the tax rates are not the same across the state). To make this more complicated-affiliates move, state tax laws change (all 50 states and within each state), and if the purchase is a digital, there isn’t a shipping address to confirm the location of the purchaser.

    It seems the easy path when money is needed to look where it can be taken from instead of trying to create ways to generate money. This is a time we should be encouraging entrepreneurs and clearing the way for the creation of jobs, not put up hurdles, create complicated taxes and eliminate opportunities. Let’s find ways to encourage growth, not impede it. Only through growth will Minnesota prosper and become financially healthy.

    • I’m not opposed to extending the Minnesota sales tax to clothing. In fact, I don’t know why that didn’t happen years ago. However, I don’t see these options as mutually exclusive. I would still want online retailers with nexus in Minnesota to be held to the same taxation standard as retailers with Minnesota addresses. That would include amazon.com.

      Website affiliates like those associated with amazon.com have been confirmed in federal court to possess nexus with regard to laws of taxation. It’s unfortunate that affiliates in New York and Colorado have lost their amazon.com opportunity, but that is amazon.com’s fault, not the fault of the states that have chosen to stand up to amazon.com’s tyranny.

      I wouldn’t fear for the ability of corporate leviathans like amazon.com to determine how to calculate and collect appropriate taxes from customers in states around the country. They are the technological whiz kids of the age. If they can’t do it, it can’t be done. In fact, many of amazon.com’s competitors are already doing this. Amazon.com isn’t complying because it lacks the resources or the techical know-how, it’s in non-compliance because it’s a tax dodger . . . on a colossal scale.

  2. Oops – Correction – I mentioned digital products in above comment. Those are not currently taxed in Minnesota. Since those are not shipped anywhere, that would create a huge mess.


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