I have a beef with Amazon over its collection of sales taxes. I’m not a tax scofflaw, I have no beef with Amazon collecting sales taxes so long as Amazon collects the correct amount of sales tax.
Amazon sells and ships everywhere in America. The Supreme Court held 25 years ago (Quill Corp. v. North Dakota) that a state can collect sales tax only from a retailer that has a physical presence in the state. The reasoning of the court under the Dormant Commerce Clause was that requiring a retailer who ships into states where it has no physical presence would constitute an unreasonable burden on interstate commerce. There are 50 states and 49 impose sales tax (New Hampshire has no sales tax).
To require an online retailer to calculate sales tax for 49 states is a heavy burden. The Quill case remains the current law. A case from South Dakota may give the Supreme Court a chance to reconsider the Quill ruling.
A small online seller that ships to all 49 states that have a sales tax would have a lot of extra work to do in collecting differing amounts of sales tax from all those states and filing the proper paperwork with each state. This is so if the online seller collects only that state tax. If an attempt is made to collect city and county sales taxes a small online seller would be looking at nightmare that would likely put them out of business. There are 43,000 zip codes in America, and there are also 43,000 individual city sales tax departments.
Amazon, on the other hand, seems capable of doing just about anything it sets it mind to. So Amazon now collects not only state sales taxes, but local sales taxes in every zip code as well. That’s a huge task in itself. But there’s more.
Many if not most zip codes do not cover only one city or municipality. A single zip code may cover anywhere from 2-5 separate sales taxing authorities. Therefore, in order to collect the correct sales tax Amazon must not only deal with 43,000 separate taxing authorities, but perhaps 2-5 times that many. That a whopping lot to do even for a giant such as Amazon.
I guess Jeff Bezos realizes that there may be more than he bargained for here because Amazon doesn’t do that at all. Instead, Amazon collects the states’ sales tax and the city sales tax only for the city in which the post office for each zip code in located. That means that if a customer lives in a city that has the zip code of a post office located in another city, the Amazon customer is paying sales taxes not to his own city, but to another city in which he does not live and would not be legally obligated for sales tax in that city for internet purchases.
Now, to my beef with Amazon. The city I live in has no city sales tax. If I go to the local Home Depot and buy a refrigerator that is delivered to my door, I pay only the sales tax owed to the state. This is so even though the Home Depot store may be located in that other city which does have a sales tax. I do pay sales tax to that city when I buy things that I take away from the store. If the item is delivered outside that city its sales tax does not apply. The sales tax of the city in which the delivery is made applies. In my case that is zero, because my city does not impose a sales tax on retail purchase delivered by a vendor located in a different city.
Here are the numbers. The state I live in imposes a sales tax of 4.25%. That is the amount Amazon ought to collect on my purchases. But Amazon also collects the 3.75% sales tax of the city where my zip code post office is located. I am not legally obligated to pay sales tax to that city because that city has no nexus, no connection to the sale in question.
I have tried in vain to get Amazon to stop illegally collecting an erroneous amount of sales tax on my purchases. Illegally? Yes, a retailer must have a license from the taxing authority to collect sales taxes on sales made in that jurisdiction. Collecting the wrong amount, and doing it knowingly, is usually a crime.
You can see the reason for this. Collecting sales taxes imposes additional burdens on retailers. If they try to jack up the tax rate to cover their extra costs they are committing a crime. Most taxing authorities already share a small percentage of the tax with the retailer to compensate them for the extra work involved. It is fraudulent to deviate from the proper percentage. That is what Amazon is doing. It is, in this sense, operating a criminal enterprise. This might not end well for Amazon. Maybe someday they will regret ignoring all my correspondence with their corporate headquarters.
I hope some law firm specializing in class action suits may see an opportunity here. The suit should be against Amazon, and every city that is illegally benefiting from the receipt of tax revenue to which it’s not entitled.