After years of fighting states, Amazon makes sales tax standard

Residents in all but five US states will now be charged state sales tax when making purchases through the online retailer.

First Look

It’s official: Starting from April 1, Amazon will collect sales tax nationwide in all 45 states where the levies are required. 

After years-long battles, the online retail giant announced last week that it had added the four remaining holdout states to its sales tax collecting list. The new decision, which expands the complete list to cover a total of 45 states, is a major victory for states which have complained that online marketplaces diverted needed funds away from the states and local retailers.

Residents of Alaska, Delaware, Oregon, Montana, and New Hampshire will still be able to shop tax-free because their states do not have sales tax.

Maine, together with Hawaii, Idaho, and New Mexico, were the last four states to strike a deal earlier this month with Amazon to collect and remit tax on goods it sells in those states starting Saturday. Maine’s commissioner of the Department of Economic and Community Development (DECD), George Gervais welcomed the decision as a boon for his state.

“Today’s decision by Amazon is welcome news to Maine retailers and consumers,” Commissioner Gervais said in a statement on March 20.

“Maine businesses can go toe-to-toe with the very best out-of-state companies, provided they are competing on an equal playing field,” he added. “Amazon’s decision to collect and remit sales tax to the State of Maine is an important first step in leveling the playing field. The increased revenue will help the LePage Administration and lawmakers in making further reductions to Maine’s income tax.”

States and online retailers have been at odds over the issue of state sales tax collection for decades. Citing challenges involved in collecting sales tax for multiple states, a US Supreme Court ruling in 1992 said states could only require retailers to collect state taxes in territories where they have a physical presence.

According to the National Conference of State Legislatures, states lost an estimated $23.3 billion in 2012 from their inability to collect online sales taxes. 

“With nearly every state still facing budget shortfalls, this revenue could help fund police, school teachers and other much-needed programs,” the report wrote. 

Many states have attempted to address the problem by asking residents to self-report online purchases for which the e-retailer did not charge sales tax on its annual tax returns. But such reporting is voluntary and not consistently followed, which led lawmakers to consider requiring all online marketplaces, large or small, to collect state and local sales tax.

In the executive budget for fiscal year 2018, New York Mayor Bill de Blasio called for a modernization of the sales tax collection process to reflect the rising e-commerce economy, asking marketplace providers to collect taxes from not just New York residents but also from those located outside New York. At least two other states, New Mexico and Rhode Island, are considering similar proposals, according to Time. 

Amazon's decision to comply with states' collection requests may have to do with the company's expansive business plan to open more distribution centers across the country to shorten delivery times and to establish more of a physical presence in the retail world with physical grocery stores and brick-and-mortar bookstores.

Regardless of the motivation for the move, tax experts applaud the decision to make state sales tax collection standard.

“This expansion in Amazon’s tax collection practices represents a step forward for rational sales tax policy,” Carl Davis, research director at the Institute on Taxation and Economic Policy, wrote on March 21.