President Trump pointedly accused Amazon of not paying enough in taxes.
That's an interesting call for our president, who apparently didn't pay federal income taxes for years and boasted about "brilliantly" working tax laws as a private citizen.
If the president is trying to highlight unfairness in our tax systems, he’s right. He’s just off on the target.
The real target is you, if you shop online and don’t pay sales taxes on some purchases.
A bunch of online retailers, many of them small outfits, are also likely to feel the pinch.
The president recently tweeted of Amazon: “they pay little or no taxes to state & local governments.” Last year he tweeted that Amazon had a “no-tax monopoly.”
The president also bashed Amazon for driving too hard a bargain in contracting with the U.S. Postal Service to help with deliveries. (When swinging at Amazon, the president also tends to simultaneously smack the Washington Post, the hard-hitting newspaper privately owned by Jeff Bezos, Amazon’s founder.)
The assumption is that Trump’s tax accusation against Amazon is referring to sales taxes (though Amazon, like a lot of companies, has also been allowed to avoid lots of other kinds of taxes in return for creating local jobs).
For years, Amazon and some other online outfits maintained an unfair competitive advantage over brick-and-mortar retailers by not collecting sales taxes from shoppers, which of course made Amazon’s wares look even more affordable.
Credit: Ethan Miller
Credit: Ethan Miller
In some cases a legal loophole helped the tax dodge. The U.S. Supreme Court ruled — before Amazon even existed — that retailers weren’t required to collect sales taxes in a place where they didn’t have a legal physical presence. That seems archaic now, like telling Facebook it doesn’t have to worry about Russians.
Times change. Amazon now says it collects sales taxes in all 45 U.S. states where such a tax exists, turning over billions of dollars a year to government. It was a pain to get Amazon to finally start collecting in Georgia five years ago.
That’s only part of the story, though. Because lots of sales on Amazon and other online sites still aren’t being taxed. Half of everything sold on Amazon is being peddled by independent retailers, including little mom and pops and guys in garages.
“When an average Joe buys on Amazon, they don’t know if they are buying it from Amazon or buying it from a third-party seller,” Lauren Stinson told me.
And many of those sellers don’t collect sales taxes from shoppers, or at least don’t in all the states where they should, said Stinson, who specializes in sales tax as an Alpharetta-based principal for the Cherry Bekaert accounting firm.
Many Amazon sellers don’t fully appreciate the complexity of the issue, she said, particularly when some of their inventory spreads throughout Amazon’s sprawling network of warehouses.
“They don’t think that having 50 pairs of socks in a California warehouse is going to require them to start collecting California sales tax.”
“The third-party sellers that are caught in the cross hairs,” she said. “Trump doesn’t seem to fully understand the whole, full big picture of it overall.”
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Shane Gottwals runs a chain of new-and-used book stores based in middle Georgia. A quarter of Gottwals Books' sales are made online through Amazon, his top competitor.
“If we were not selling on Amazon, we wouldn’t be in business on the scale we are,” Gottwals told me.
He doesn’t charges sales tax on most online purchases, because most are to customers who aren’t in Georgia where he has a physical presence.
That gives him a cost advantage over some rivals. But he isn’t anxious to hold on to it.
“My hope is that every state ends up requiring the taxes,” he said. “Then it evens it out for everyone.”
The overall system is unfair. It doesn’t make sense for sales tax to be collected on an item bought in a physical store but not so often if it’s purchased online.
There’s debate about whether Amazon or its third-party retailers should be the ones doing the collecting. But if shoppers aren’t charged the sales tax, the consumers are supposed to be paying the tax money directly to states. Of course, almost no one bothers to do this.
Credit: Mark Makela
Credit: Mark Makela
Some states are pushing back. Pennsylvania and Washington require Amazon to collect sales taxes on sales involving third-party sellers.
Hopefully other changes are coming. Congress has dragged its feet on addressing the issue, but the U.S. Supreme Court is considering a case that could toss the current loophole.
States and local governments nationwide could raise an extra $13.4 billion a year in sales tax if they get full authority to collect from remote sellers, according to a recent federal report. Georgia alone could pocket $367 million a year.
That’s not free money, though.
Small online retailers could face $900 a month in extra charges from firms that help calculate and remit sales tax money to states throughout the nation, according to Brandon Checketts, who co-founded Athens-based Seller Labs, which makes software to help third-party sellers on Amazon.
“The administrative burden on it for small sellers is obscene.”
Online shoppers, of course, will get pinched, too, Checketts said. “Overall consumers should expect to pay sales tax when they buy online.”
Maybe the president will tweet that next.
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