Twisted Sales Tax Arrangement

[Snaggletooth]

I hate long posts, so I'll do my best. But it has quite a chronology.

Most of you need no review of the Amazon.com situation - long-running court fight with New York state, the firing of independent representatives on the spot in California because that state was going to make them collect sales tax, etc...

Amazon, of course is relying on the Supreme Court decision which exempted internet sales for a number of reasons, one of them being the administrative burden placed on the seller to track sales tax laws in every jurisdiction (remember this later). Amazon must have a PHYSICAL PRESENCE in the state to establish nexus, the Supreme Court says.

So Amazon has sought out states friendly to their sales tax posture to expand their business. My state, Tennessee, cut such a deal with them: in exchange for building three distribution centers in TN, the state would not require them to collect sales tax, so the "physical presence" ruling was rendered useless by this negotiated agreement.

Now that they are here, large retailers all over the state are complaining. The sales tax rate is nearly 10% and other retailers cannot compete with them. One of them, huge D T McCall (of tiny Carthage, TN) has retail outlets in dozens of places statewide, and promises to bring political pressure on the legislature. (The agreement was negotiated by the Governors' office and the legislature never voted on it)

TN is thus put in an awkward position. With no income tax, the sales tax is the chief focus of their revenue stream. Soooo, you'll never guess what happened!!

TN kept its agreement with Amazon. No sales tax is to be charged or collected. However, two people close to me have received correspondence from Amazon. The note gives a summary of sales made to these individuals in the last 12 months - from Amazon and its four subsidiary companies. The note states they were not charged sales tax, but the consumer still owes the State under a "Use Tax" purchase. The note even gives a website address whereby the consumer can voluntary pay 9.75% of the purchase price to Tennessee as this is the obligation of the consumer.

CAN YOU BELIEVE THIS???

Yet another politico/corporate example of "doublespeak."
I don't resent the money because it should have been charged anyway.
One of these recipients was my sister, another was a client.
My sister is boycotting Amazon - should have just been charged the tax on the front end.

[OtisMozzetti]

Tennessee income tax, if there is any

...My state, Tennessee, ...

TN is thus put in an awkward position. With no income tax, the sales tax is the chief focus of their revenue stream. ...
...

Snaggletooth, you obviously know a hundred thousand times more about Tennessee than I do, and maybe I should go look this up...Do I recall that TN does not have "no" income tax; what TN does is to tax only certain types of investment income?

[OtisMozzetti]

My visit to www.tn.gov/revenue showed that Tennessee imposes a 6% income tax on some, but not all, dividends and interest received in excess of $1250/$2500 MFJ. Certain lower-income taxpayers who are 65 or older are also exempt from that income tax.

Maybe I should have used my copy of TheTaxBook all states edition as my reference.

[Snaggletooth]

Vernacular Usage

Otis, you are quite correct, there actually IS some form of an income tax here, but it is so obscure that not even most Tennesseans even know about it.

I am guilty of making concise statements instead of exact statements when the vernacular calls for it. The essence of the statement is that Tennessee relies overwhelmingly on the sales tax for its revenue and for planning purposes they virtually ignore income tax collections, a mere trickle by comparison. Of a $30 billion budget, only $200 million comes from the income tax.

I was called out a couple weeks ago for a similar omission, deliberately not focusing on further complexities of state tax refunds when the subject matter mercifully should have been spared of a few more posts and complex references for the sake of staying on-topic.

I will continue to ignore precision-type accuracy that adds unnecessary facets to subject at hand. But I don't mind being corrected. Thanks, Ron J.

[erchess]

Yes I can believe this

NC has a Use Tax as well although as far as I know the only way to pay it is when filing a State Income Tax Return (and golly gee we do have a large income tax). I guess I don't see what the problem is. On the one hand the State made a deal with Amazon which it doesn't want to break and shouldn't be allowed to. On the other hand if it doesn't hit Amazon's consumers with use tax then Amazon will enjoy a competitive advantage over locally owned bricks and mortar and for that matter mail order and internet operations. That strikes me as politically foolish and down right unfair.

[David1980]

Not sure I understand why your sister would Boycott Amazon - the requirement to pay tax on internet orders where the tax wasn't charged isn't something new. I think most states have that requirement, though it's ignored pretty universally... So Amazon is just providing more information than they previously did? I could see boycotting them if they were reporting the sales to the state so that the state could go after the individuals, but I don't get the impression that's what they're doing?

At which point it wouldn't so much be a boycott but a decision to purchase elsewhere to avoid paying your taxes.

[Golden Rocket]

Boycott Rationalization

I don't believe avoiding sales taxes for something that should have been charged up front is the issue.

It is the chicanery, the closed-door deals, the politics, and perhaps worst of all, personal purchase information which is now being made available to the state.

Just collect the tax, remit it, and be done with it. Don't go through these elaborate hoops of furnishing data to the state, and make thousands of citizens suddenly in a position to report "Use" tax when they've never done it before.

[DaveO]

I think a business claiming they can’t compete with Amazon because of the sales tax issue is a red herring. I buy items on Amazon because I can’t find them locally, they are cheaper, or the selection is better, not because of the sales tax issue. I needed a HDMI cable recently. After checking local stores and seeing the price from $50 to $80 I went on-line and bought one for $8 new, with shipping included. Sales tax never entered my mind.

The self reporting of Use Tax has been around in Nebraska for a long while. Recently the state included a line on the income tax return for self reporting. I’ve advised my clients to include something on that line but so far very few have done so. Failing to include a number on that line is seen by the state as an “incomplete” return if indeed you owed use tax from on-line purchases. That opens the audit statute up from 3 years to 6.

After the big tobacco settlement of the 90’s mail order sellers of tobacco products were required to turn over their customer records to the states. Here in Nebraska they used that information to assess and collect the Use and Excise tax from individuals who had ordered tobacco on-line. I can see that happening very soon for Amazon type purchases especially given the fact the 1099K information can be mined for the data needed.

[joanmcq]

Cig buyers in CA have been hit with bills & penalties too. The amount of tax here is large, not just sales tax, but excise taxes as well.

CA at least has had use tax on the books since at least the 1930's, but only since internet sales became such a large part of total sales has it become much of an issue, and the states have realized how much money they are losing. And brick& mortar companies do have a hard time competing; for books, movies & CDs, Barnes & Noble.com has a huge selection too, but has to charge sales tax in CA because they have a physical presence here. This gives Amazon an edge.

But some things you just can't find in stores: for example my Fujitsu scanner. None of the b&m stores around here carried them (and I'm in a major metropolitan area), and so I bought online. I wasn't charged sales tax, but that wasn't a consideration. The vendor I bought from had the lowest price (and it wasn't Amazon). And yes, I reported the use tax on my CA return.

[veritas]

Amazon

I buy many things from them. Since we don't have a sales tax it is of no concern to me. But you must "shop but verify".

For instance I found a a bathroom fan replacement from Amazon for $24. It was $15 at Home depot.

I found a nice power washer @ Amazon, read the reviews and decided it was right for me, then I bought it locally for $5 less.