Internet Sales Tax

[Nashville]

This is an off-topic tangent from another thread so I'll start another one.

One of our more knowledgeable members, Don Priebe from the Erie Canal region of NY, said that New York was going to force Amazon.com to begin collecting sales tax. New York is not the only state delusional about sales tax collections from the internet.

Amazon.com is certainly large enough to administratively collect sales tax from all states. However, they are also large enough to slug it out with NY in federal court, where the Supreme Court has already ruled they must have a physical presence in a state before being required to collect tax.

Most of the states have jacked up their sales tax rates high enough that it is cheaper to pay freight than to pay the tax. I'm sure that's why Amazon has chosen not to own or rent distribution warehouses in states other than their home domicile (Washington I believe).

Can anyone else in NY (or any other state for that matter) provide any insight as to how this might play out?

[gkaiseril]

Quill Corp. vs North Dakota

Unless NY has a new viewpoint to present, this is an unresolved issue for an out of state vendor to collect sales taxes for a state in which the out of state vendor has no nexus (physical presence), in the state the items are being shipped to.

But the states are free to collect a 'Use Tax" from the in state pruchaser for any "Sales Taxed" items purchase outside of the state and brough into the state for use within the state. The "Use Tax" is charged at the local rate and a credit is usually given for "Sales Tax" paid to the other state at the time of purchase.

Many states are trying to dun residents for these pruchases but without much success. The local attorneys are saying "take us to court" and "prove what we owe you", which will be far less than the cost to force the issue on every individual. This could be pretty hard to do without forcing the U.S. Post Office to open the mail or have the state employees open the mailed items and determing if theere is any taxable merchandise.

[DonPriebe]

Found a link

Here's the rationale for showing that Amazon.com has a nexus in NY.

http://www.computerworld.com/action/article.do?command=viewArticleBasic&taxonomyName=government&articleId=9077963&taxonomyId=13&intsrc=kc_top

[Snaggletooth]

What a Stretch

Thanks for the link, Don.

After reading it, I will assert that if NY can get away with this, there is practically no end to what could be construed as nexus. Essentially, anyone who promotes, refers, or communicates with Amazon.com could invoke nexus.

This is a far stretch folks. If this were a civil court involving two commercial companies, it wouldn't have a prayer. But government doesn't live by the same laws it passes for the rest of us to live by. This would violate the U S Supreme Court ruling by any clear thinking person. But all governments, Federal/State/Local have a tendency to tag-team taxpayers.

I've had only incidental contact with New York, but I would have to say they are the most avaricious of all states. And ALL of them are tax-happy.

[JohnH]

I've noticed a signficant increase in sales tax audits in NC over the past 3-4 years, even for taxpayers who pay relatively small amounts of sales tax. The auditors will tell you up front that their interst is primarily in Use tax. They will do a quick look at billing vs tax collected, and then immediately turn their focus on purchases.

In addition to my accounting & tax work, I also operate a manufacturers rep business selling to hospitals, universities, and pharmaceutical companies. The companies I rep are based in other states, such as Michigan, Utah, Wisconsin, etc and I am an independent rep for all of them. The companies ship the product from their manufacturing plants into NC & SC and invoice the customers. Company employees almost never enter NC or SC, except occasionally to accompany me on selected customer visits.

Both SC and NC have contacted those companies as a result of Use Tax issues raised in audits in the past couple of years. They intially contacted me on one or more of the audits, and once they determined that I was a manufacturers rep they immediately demanded the names & addresses of all the companies I rep. I was concerned that this might not sit too well with the companies, but when I notified them they all said they were already being scrutinized as a result of other use tax audits in progress.

SC has been especially aggressive and has bullied two of the companies into charging sales tax, even though they have no physical presence in the state, no inventories, no distribution facilities. Their argument hinged primarily on the fact that I perform on-site demonstrations, training, and occasional service or repair work on the equipment after it's delivered in SC, even though I'm based in NC. They seem to be grabbing at any excuse they can find to determine Nexus, often picking & choosing from a broad list of factors. I have a copy of the SC list, and it's sufficiently vague that they can make the case for almost anyone doing business in their state being subject to SC sales tax. Not that it would hold up in court, but who has time to fight them when you're trying to run a business?

[les grans]

Make the rules better and enforce them equitably!!

"...who has time to fight them when you're trying to run a business?" Well said, JohnH. Next subject will be looking for the "level playing field" for those of us trying to run a business. Will the states help us with that with as much effort and diligence that they're pursuing the sales and use tax $$$$$$$$$$$$$?? Not likely. But I'm a cynic.

[Edsel]

Ridiculous

In addition to my accounting & tax work, I also operate a manufacturers rep business selling to hospitals, universities, and pharmaceutical companies.

John, in other words, because you have an office in Charlotte, and may sometimes drive to Rock Hill, this means both NC and SC can claim these far-flung companies now have a presence in the Carolinas just because you are an independent manufacturers rep?

I say again, "Ridiculous."

They're going too far, and someone needs to take them to court. If Amazon takes NY to court and wins (and they should) this should serve as a landmark case for these other greedy states. My advice to Amazon, however, is to stay out of a state court. A Federal court will side with the Supreme Court ruling, and if the states appeal, the Supreme Court won't even hear them again without new legislation.

[JohnH]

It's even more ridiculous, because I left something out of the first post because it was getting so long. In rare situations I will buy from the mfgr, have the equipment drop-shipped, and then invoice the customer directly. Not often - maybe a half-dozen times a year. So I have a letter from SC saying I don't have to charge sales tax on those transactions which go through me in NC, while at the same time they are bullying the mfgr into charging sales tax. As a practical matter, what's the difference?

I would pass this info along to the mfgr to try and help them, but we all know that the only result would be that SC would simply change their mind and begin requiring me to charge sales tax as a means of retaliation.

[DaveO]

In Nebraska the law

States you are guilty unless you can prove you are innocent. No need to go to court. They need only assert that you owe them taxes and the law gives them a first lien on all property you own within the state. Once they issue notice of intent to levy they move much faster than the IRS ever thought about moving.

[JON]

Am I missing something.

You are subject to either sales tax or use tax. The only exception is a state that does not have those. If you are audited you will pay the use tax. If your choice is to take a chance that is your choice, but do not expect to win if your state has sales/use tax, and you are audited.

[JohnH]

You're right, but the number of taxpayers who buy from an out of state vendor who doesn't charge sales tax and then skip paying the use tax is phenomenal. Either by design or through ingnorance, they just don't do it. And most won't start until they are audited, so the state tax deparments are targeting the sellers. That's the point of this conversation.

[Snaggletooth]

General Public Consumers

Absolutely John. A company such as Amazon.com sells almost exclusively to individual private consumers.

State auditors can make life miserable for an established company who does not report use tax. However, they will not audit millions of individuals - it's not feasible, possible, or politically savvy. So unless they can go after the sellers at the source, they will not recover the money.

Most of the states (including my state of TN) have even passed laws which make out-of-state purchases by individuals taxable, and have vehicles where individuals can mail the money in. Alabama even had a line item on their income tax return, where individuals would accumulate sales tax on internet purchases over the course of the year and then remit when their income tax return was filed. I believe this has been discontinued after very predictable lackluster collections.

None of these measures has resulted in compliance by the general public. So they are looking for any flimsy excuse to establish a nexus for a company that never operates in the state.

It is one thing to pass a law, and another thing to collect money. As far as laws go, in my state it is against the law to lasso a fish.

[joanmcq]

I think almost all of the state income tax forms have the use tax line on them. CA is starting to target preparers because it seems fewer preparer returns have use tax paid. Really, I'm trying to make it a part of my interview, but I have to admit, I forget. So I guess I am guilty.

And then I wonder, did I buy anything from amazon this year? cause sometimes I do pay tax on internet purchases, and sometimes I don't. I guess I'll have to keep a file of invoices...

ooh, that reminds me, I have a gift cert for amazon...