Why Amazon Wants To Make You Pay Sales Tax

Our days of sales-taxless, free-love internet revelry may be numbered. Thursday afternoon, the Senate voted to open the floor to a bill that could end tax-free online shopping once and for all.

And strangely enough, everyone's favorite online tax-free haven is leading the charge. Et tu, Amazon? Also... why?

The new legislation would require all internet retailers to charge the sales tax rate of the item's destination, overruling the 1992 Supreme Court decision in Quill v. North Dakota that made online shopping an easily tax-free zone. According to David French, senior vice president for government affairs at the National Retail Federation:

The industry is evolving very rapidly, and the law today is a 20th-century interpretation of an 18th-century document that is holding back the entire retail industry as it adapts to 21st-century consumer preferences and demand.

In other words, states are tired of missing out on the estimated $22 billion a year that taxed online sales could produce. And Amazon's doing everything it can to help them get it back.

How did this happen?

According to the Quill ruling, retailers without an actual physical presence (stores, warehouses, computer servers, what have you) in a state aren't required to force customers to throw down sales tax on their purchases. While a lot of business that allow mail and online orders do, in fact, have brick-and-mortar locations in plenty of states—think Best Buy, Target, Walmart—it's this ruling that spurred Amazon and others like it to build as few of their warehouses around the country as possible. With this handy little loophole, massive online retailers get to offer lower prices, lure in more customers, and put another nail in Mom and Pop's respective coffins, all in one fell swoop.

But the bipartisan, 10-senator-backed bill thinks the playing field's become uneven, and they're ready to level it out. Rep. John Conyers (D) of Michigan said at Wednesday's hearing:

Today, while local small business retailers follow the law and collect sales taxes from customers who make purchases in their stores, many big business online and catalogue retailers do not collect the same taxes. This puts local neighborhood-based small businesses at a disadvantage to big, out-of-state, online companies. And because these out-of-state companies are able to cut corners and play by a different set of rules, cities and states lose out on funding for K-12 education, police and fire protection, access to affordable health care and funding for roads and bridges.

Of course, just because the retailers aren't required to collect the tax themselves doesn't mean that it's technically not still there. For every online and otherwise non-sales-taxed purchase you make, the government is putting you on your honor to add up the missing taxes and pony up of your own volition. But shocking as it may be, the vast majority of people steal from our poor, helpless government every year by filling that line in with a miserly little zero.

But isn't Amazon screwing itself over by supporting the legislation?

Why no, no it's not! Sure, the tax-free party it's been enjoying for the past 21 years was a great business strategy for a while, but times are changin'. Most people these days are united by at least two factors: an irrational demand for instant gratification and a desire to have as little face-to-face interaction with other people as is humanly possible.

So to keep up with our whiny, minsanthropic ways, Amazon has installed same-day, one-click delivery in 10 cities across the country. Same-day delivery means huge, fully stocked warehouses. Warehouses mean obeying state tax laws. And the heavy populations in the places getting the service will almost always mean a state sales tax.

So with these additions, Amazon's days of skirting tax law are coming to a close. Rather than find another way to sneak around the sales tax rules, its lawyers and lobbyists have opted to make damn well sure that everyone else is going down with them. Or as they chose to frame it, create "an even-handed federal framework for state sales tax collection."

So why does this matter?

Everyone hates paying extra taxes. Remember the Boston Tea Party? And with the rate we as a nation have been growing increasingly dependent on online shopping, those extra dollars spent are going to add up quick. Long story short: it's going to make your life a whole lot more expensive.

It's not just going to hurt your wallet. The diversity of the marketplace could get slashed as well. As individual sellers with retail aggregators like eBay and Etsy decide the tax hike isn't worth the time it takes to carefully craft their cat hair necklaces, they'll start taking down their online stores. And YOU'LL never get to know the joys of wearing metal balls of cat sheddings around your throat.

The situation's not totally dire. As we very well know, getting a law passed can be a complicated process, even when it's pretty widely supported. Conservatives, in particular, are not fans of increasing pressure on businesses just so our states can turn into socialist hand-out free-for-alls. A lot of voters aren't too keen on an effective tax hike, either (gasp!), which means that the bill might not make it past the House of Representatives pending Senate approval on May 6.

Still, even if the House does kill this particular piece of legislation this time around, you can bet Amazon won't go down without a fight. It seems almost certain that sales tax will invade the internet someday. Let's just hope Super Saver Shipping isn't next. [Wall Street Journal 1, 2, 3, Real Clear Politics, SupremeCourt.gov]