Recently, it was announced that Amazon.com would begin collecting sales and use taxes on purchases made by Georgians starting Sept. 1. If you remember, HB 386 was passed in the 2012 session that required collections starting last year, but Amazon has just now begun to comply with state law.
A common misconception is that goods purchased over the internet are exempt from state and local taxes. This assessment is incorrect. Similar to store bought purchases where the buyer generally sees a line added for “sales tax,” officially the state revenue laws include a “sales and use tax” where the term “use” refers to the obligation of the buyer to pay taxes on out of state purchases which are “used” in Georgia (to see the policy and forms for the use tax, please see: https://etax.dor.ga.gov/pressrel/Use_Tax_Press_Release.pdf ).
Actually, because automobiles have to be titled, these purchases made out of state have already had the sales tax collected by the state and local governments. The issue is not whether there is a tax liability but rather who is responsible for remitting the tax to the state. The law passed in 2012 simply said that the retailer, not the individual taxpayer, is responsible for remitting the tax.
The confusion stems from the 1992 U.S. Supreme Court ruling “Quinn vs. North Dakota” which stated that retailers do not have to collect sales taxes in states where they do not have a physical presence (known as a “substantial nexus”). This was prior to widespread adoption of the Internet and was targeted at mail and phone order companies. The basis of the ruling was that only the federal government had the ability to require retailers to collect the taxes. But states still have the ability to assess the use tax on goods purchased out of state.
States have not had much luck in compliance with use tax reporting by Internet companies. The National Conference of State Legislators estimates that states will lose a combined $23.3 billion in uncollected use taxes.
Concern about varying state regulations has led Amazon.com (the largest online retailer with $34 billion in annual revenue) to support the federal “Marketplace Fairness Act,” now in Congress. This bill would require the collection of use taxes whether the retailer has a presence in the state or not.
A state would have to conform to the Streamlined Sales and Use Tax Agreement which requires states to make their sales tax rules and definitions uniform (Georgia and 43 other states already participate in this agreement). The legislation would, however, exempt online retailers with less than $1,000,000 in annual revenue from the collection requirement. Amazon.com “strongly supports the measure” so long as few companies can duck the requirements.
This is important because, according to Amazon VP Paul Misener, only 1 percent of online retailers sell more than $150,000 per year. eBay, though, opposes the measure because they fear it will make small Internet retailers less competitive against large retailers.
In addition to the states, small brick and mortar companies will gain from the Marketplace Fairness Act. Advocates, like local chambers of commerce, argue that local businesses are at a complete disadvantage as long as they alone have to collect sales taxes.
Congressman John Conyers commented on this disadvantage saying, “What we’re doing today is exploring the need for legislation to level the playing field between small businesses and online retailers. Local ‘mom-and-pop’ stores, and other businesses, suffer when they have to collect a sales tax but online retailers don’t.”
Companies like Amazon are coming to the conclusion that it is better to work with states rather than oppose them. As online sales increase, it will be important to create a balance of the administrative requirements placed on ecommerce retailers with the legal taxes owed to states.
The legislation now under consideration in the U.S. House will be a battleground for eBay-type buyers and sellers.
I may be reached at
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