Online Sales Tax Collection and Physical Presence

BY CCIA Staff
January 24, 2013

Last year, CCIA consistently opposed efforts to pass legislation that would force online retailers to collect sales and use taxes regardless of physical presence.  Last month, we opposed an attempt in the lame duck session to attach such a bill to the defense authorization bill.  In light of such back door efforts, as well as the stated determination by proponents in Congress to continue to push for legislation in the new Congress, we remain vigilant against any further attempts to misleadingly frame the issue as one of fairness and leveling the playing field.  One Reuters article in the aftermath of the holiday shopping season caused us concern by seeming to conflate Amazon.com, which is a retailer with both physical and online operations (“click and mortar”), and Internet retailers with no physical presence.

The article quotes an analysis by ChannelAdvisor comparing its clients’ sales on Amazon.com in California, where Amazon began collecting sales tax in September, to other states before and after the sales tax collection started.  However, Amazon is described as “the world’s biggest Internet retailer,” and results showing sales on Amazon dropping in states where it collected sales tax compared to other states seem to be depicted as evidence that tax collection “levels the playing field for brick-and-mortar stores.”  This characterization of Amazon as a typical Internet retailer in contrast to brick-and-mortar stores is so inaccurate as to miss the entire point of the 1992 Quill decision, which was based on physical presence.

Amazon’s decision to collect sales taxes in certain states has come as it has increased its physical presence in order to reduce delivery times.  “It has looked at its own plans for growth and the need to have distribution centers in many states to continue that trajectory.”  To contrast Amazon to Best Buy, both of which combine online sales and physical facilities, is no contrast at all.  CCIA’s opposition to online sales tax collection is based on the need to maintain the relationship between taxes and physical presence, and the need to avoid penalizing small innovative Internet retailers with tax collection burdens.  Articles like this one can make the case that giant click-and-mortar retailers like Amazon and Best Buy should collect taxes in the same way.  However, this argument cannot be extrapolated to smaller Internet retailers with no physical presence in states.  This distinction is crucial in avoiding the fallacy of framing this issue as one of equity/fairness/leveling the playing field.

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