New York to Implement an 'Amazon Tax'

theodp writes "NY Governor David Paterson is expected to sign a bill requiring online retailers to collect sales taxes on purchases shipped to the state, even if they have no operations or employees working there. The so-called 'Amazon tax', which applies to Internet retailers who derive sales through affiliate programs, would end what for many New Yorkers had been tax-free shopping and generate an estimated $50M in revenue this fiscal year. Experts predict that other states could follow suit with similar provisions."

they can pass it all they want...

It's not Constitutional.

Re:they can pass it all they want...

My thoughts exactly. This has "interstate commerce" written all over it.

Re:they can pass it all they want...

Not so fast: You're right that thanks to the "dormant commerce clause," New York can't burden out-of-state commerce or commerce that just passes right through New York without stopping. For example, New York can't tax goods that pass through New York on their way from Maine to Florida on I-95, nor commerce that happens in other states.

But, almost every state that has a sales tax also has an excise tax for people who import goods from out of state. For example, in most states if you import a car into the state then you pay the sales tax on the car even if you bought it in a state with no sales tax.

New York can very constitutionally tax goods that are used in New York. And it can reach Amazon to enforce it because Amazon has "purposefully availed" itself of the New York market by advertising there and shipping orders there. See the case Asahi Metal.

Re:they can pass it all they want...

Excise tax on imported goods is buyers' burden. And the burden for compliance is on the buyers as well. With cars it's easy to track because a car must be registered in the state into which it has been brought. NY State is proposing to make this tax the sellers' burden. It's not the same situation. The question is whether they can compel Amazon to report to the NY State information about Amazon customers with NY shipping addresses. If they can't, then this is an exercise in futility. They might as well pass laws about non-US nationals on non-US territory.

Re:they can pass it all they want...

tax also has an excise tax for people who import goods from out of state.

This is precisely where their argument (and yours) falls apart. They only have legal standing to demand tax from the person bringing the item into the state. They have no legal right to demand that Amazon, an out of state seller, do anything at all for them. Any taxation they demand has to come from regulation of the buyer. The Asahi Metal Industries v Superior Court of California was about product liability, not taxes. The Interstate Commerce clause trumps a narrow ruling on what constitutes a business presence for purposes of liability. If Amazon was sending Amazon-branded* flaming balls of pitch to New York that were starting fires, the Asahi case might have been relevant, but they're not---- they're sending mundane products, made by other companies, through the US Mail!

* note that a key fact in the Asahi case was that Asahi was the manufacturer of the product in question.

Re:they can pass it all they want...

You mean the import/export clause: No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports...

The terms "import" and "export" in the Constitution refer to imports and exports from other countries. See the treatise here [justia.com]: "Only articles imported from or exported to a foreign country, or âoea place over which the Constitution has not extended its commands with respect to imports and their taxation,â are comprehended by the terms âoeimportsâ and âoeexports."

Case: Hooven & Allison Co. v. Evatt, 324 U.S. 652, 673 (1945) [findlaw.com], holding that "These provisions were intended to confer on the national government the exclusive power to tax importations of goods into the United States."

Last I checked, Amazon shipped from within the US, so it doesn't apply at all.

Re:they can pass it all they want...

Not constitutional in our normal, sane eyes, but we are talking about the courts. They make crazy decisions all the time, because they over think the minutiae of these cases. It should take them all of five seconds to declare this unconstitutional, but they probably will say it is fine. Don't think so? Look at use tax.

Relevant sections of the constitution state:
"The Congress shall have Power To ... regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;"

"No Tax or Duty shall be laid on Articles exported from any State."

Pretty much sounds like states can't make me pay a tax when passing goods from one state to another, right? Yet states have somehow subverted this by declaring it a 'use' tax, not a 'sales' tax. They claim that they are not taxing the sale of the item, but rather, the use of the item in their state. This would almost be a plausible argument, except for two tiny problems:

1. The use tax rate is the exact same as the sales tax rate.
2. The use tax only applies to all items used in a state, but ONLY items brought in from another state.

If this were a REAL use tax, every item 'used' in the state would be subject to it. The use tax is so obviously nothing more than an interstate tax by a different name. And the courts, almighty protectors of our constitutional rights, have gone along with this bullshit argument.

Re:they can pass it all they want...

The constitution prohibits EXPORT taxes, not import.

There's a big historic difference between the two.

New York's tax is, for all practical purposes, an import tax.

Re:they can pass it all they want...

So the cure would be to bar sales to New York residents letting them know why. A few years of New York residents not being able to buy things online should make them wake up and smell the coffee.

Re:they can pass it all they want...

How exactly has that stopped the government from doing whatever the hell it wants for the last decade or so? Just raise the specter of national security and every judge in the country (especially the Supreme Court) will roll over as always. Just say that the tax revenues go to anti-terrorism activities, or that the taxation is a way of regulating and controlling what comes into the state, to make sure it's not contraband.

If we don't pass this law, then terrorists will be able to buy books and other goods tax-free. It is highly probable that terrorist cells operating in New York will need to order books and electronics from online vendors. Taxing these sales means that it will now cost terrorists 8.4% more each time they order terrorism-related materials from Amazon, dealing a serious blow to Al Qaeda's finances. Imagine how furious Bin Laden will be when he sees that his sleeper cells have gone over their budget.

Re:It's already the law in Iowa

This is called a use tax, and is a loophole that most if not all states who have sales tax use to tax out-of-state purchases. They get away with it because it applies to EVERYTHING, whether bought in-state or out-of-state, but the tax is waived if you either paid sales tax or the purchase was exempt from sales tax (like food and clothing in many states).

Why does NY want this new tax if they already have use tax? For two reasons:

1. Most people don't declare use tax, even though it's illegal not to. Either they don't understand that they have to, or they gamble on not being audited.
   
2. The state loses interest on the money for several months, because use tax is not paid until you declare taxes next year. Something you buy in January 2008 won't give the state the money until April 2009 (unless you declare your taxes earlier).
   

Quite frankly, don't be surprised if new taxes like these appear all over the place. The plummeting economy and rapid devaluation of the dollar means that even states have to collect money where they can.

Re:TAXED TO DEATH

It is precisely because rich people are utilizing loopholes to avoid taxation like purchasing land and such.

No, it is precisely because the government spends way too much money. If our government spent less, there would be less need for taxes.

As a practical matter, it is always going to be difficult as a matter of practicality to tax the rich, or the corporations for their "fair share", as the more you raise taxes, the more profitable using offshore tax havens, etc. become.

Corporations, for example, must be able to deduct business expenses. If you don't, any business with razor-thin profit margins (a good thing, competition) would be bankrupt. A 5% flat tax would be wonderful for my software company with 95%+ margins, but "unfair" (and lethal) to someone making 1-5% doing manufacturing. They would have to raise their rates, making it difficult to compete with imports, requiring more taxation on imported goods to maintain a "level" playing field.

So, it's relatively easy for modern businesses to structure relationships with other companies (not in the US) by licensing technology (for a hefty fee), borrowing money, etc. Payments can go into trust funds, foundations, etc. outside US jurisdiction. To stop these kinds of games, you would need to ban:

- owning, managing, and receiving payments from foreign corporations
- banking by private citizens using banks located outside the United States
- ownership of US corporations by foreign corporations and vice-versa
- prior approval by the US government for all business transactions between US companies and foreign companies, in order to ensure that all contracts are "fair", and not allowing money to be funneled outside the US
- use of foreign-based prepaid debit cards/gift cards, and purchase of us-based cards by foreign nationals and corporations

Even if all this did happen, unscrupulous people would simply conspire with those outside the United States to act fronts. Long story short - the more you attempt to raise taxes on these people, the more profitable it is to be a "tax cheat", and the less revenue you actually bring in.

Besides, I don't know about you, but I'd rather not live in a world like that. On the other hand, reducing spending by the government would go a long way towards fixing budget problems. How about starting with the illegal/unconstitutional ones?

That being said, the simpler and easier the tax code is, the harder it is to dodge taxes. The problem isn't the rich, it's the insane inefficiency and incredible waste of government. A simple straightforward sales tax applied to imports and domestic sales (with a prebate to avoid screwing over the poor) would eliminate most loopholes, practically eliminate the need for the IRS (saving a decent amount of money), and save so much time and effort it's scary.

No "tax day", as your taxes are always paid. No itemization, no deductions, no worrying about whether this is an acceptable business expense.

Re:Oh please

Actually, you have no clue about this. In the colonial days, British law essentially prohibited significant industry from forming in the colonies. So if you wanted to order a manufactured good, including cloth, you had to order it from England.

Mail ordering has continued since then. In the late 1800's, many people ordered kit houses from the Sears catalog. Until the 1940's, if you didn't live in a city, you basically had to mail order many products.

but I repeat myself

This sounds like some kind of serious hogwash to me. The laws applying to Internet sales should be no different than those which apply to catalog sales. If you order something out of a catalog and you have it shipped to the same state where the catalog company is, then you pay the sales tax in that state just as if you had gone to a store in that state and bought the item. But if the catalog company is in Maine and you are in Florida, then you don't pay Jack Schitt for taxes. An internet site that sells stuff is nothing more than an electronic version of a page in a catalog. Amazon is nothing more than a vast catalog of products, as are most other electronic retailing sites. So if you're in the same state where Amazon is, it makes sense that the sales tax should be added to the price, but if you are in any other state, there should be NO tax of any kind on the purchase. Amazing and incredible that every time politicians are faced with a spending problem, they just invent more taxes, instead of reducing all the unnecessary spending. Or as Mark Twain said, "Suppose you're an idiot. And suppose you're a member of Congress. But I repeat myself."

Re:but I repeat myself

Whether you order from an out-of-state catalog or an out-of-state internet retailer, you owe local sales tax on the purchase, at least in each of the three states I've lived in.

However, the out-of-state business is not obligated to automatically collect it - that's the interstate commerce part. You are supposed to self-declare it. How many people do you suppose keep detailed enough records to calculate this on their state income tax form? Or bother to declare any of it?

As much as I hate taxes . . .

This is an eventuality, and a needed leveling of the playing field. Why should a multi-billion dollar company get a competitive advantage over local businesses? Hate taxes all you want, but hate them fairly, not just those on your local small businesses. If e-commerce continues to grow, and is not taxed equitably with other businesses, this becomes a tax break for the big internet based merchants, and they need it the least. Consider this another play on the idea of a fair tax - one that levels the playing field for all businesses

Re:As much as I hate taxes . . .

It's not that simple. The Supreme Court placed specific requirements on states and cities before they are allowed to do this, and I don't think any of them have complied yet.

I have a problem with governments being able to reach beyond their jurisdiction to demand out of state / out of city companies collect their taxes for them.

I sell things online, and I don't want to be liable for collecting taxes for 30 states and maybe hundreds of cities. I've heard that the big internet retailers are fine with these taxes, because it's a burden they can easily absorb while hurting smaller internet retailers.

Re:As much as I hate taxes . . .

There's this part of the US Constitution granting sole authority to regulate interstate commerce to the federal government. Person A from State A buying goods from State B is an act of interstate commerce, and states have no authority to interfere in said transaction. Additionally, one state's laws cannot be applied to an entity that has no presence in that state. Without an entity having presence in a particular state, there is no jurisdictional authority.

There is little in the law that is "fair" when multiple separate legal entities all have sovereignty within their respective borders. Particular states are always able to compete for the dollars of other people by creating more favorable business environments.

I'm usually not in favor of defending federal control of something, but in the case of interstate commerce it makes a lot of sense to prevent individual states from denying access to their citizens of all the benefits of living in a confederation. If people go outside New York to shop, maybe it shows there's something wrong with the priorities of the New York legislature, rather than being "unfair" to local businesses.

New York took down license plates from people...

...shopping in PA malls just over the border, and sent them notices that they had to pay NY sales tax. NY also is trying to force Seneca store owners on sovereign indian land to collect NY sales tax.

Free Lunch is Over?

I fully expected this to eventually come about. There's a huge chunk of commerce in the US done through the Internet which drains a lot of possible Tax Revenue from the states when before people would just go to the local electronics store.

I don't believe it's right to tax us this way however, nor do I think it's truly enforceable at this time since tax rates in various states are so complicated and if this actually passes it will be a big precedent for other states and local governments the follow suit, further complicating the situation.

It will be interesting to watch this play out. Sadly, the American people are gonna have to start paying taxes from somewhere. We have a huge debt and a lot of immediate things the government simply needs to take care of.

Re:How does this work?

The tax is supposed to be collected where the purchase is made. So, if you are in NY and order something online, you are supposed to pay the NY tax on it. However, if the retailer does not have an actual presence in the state they are not obliged to collect the tax in behalf of the state, and in that case the consumer has to declare it when filing for state taxes. I guess they have noticed that not many people declare their purchases to pay tax on them...

Re:How does this work?

Courts have determined that when you buy something through the mail, the sale takes place at the seller's location not the buyer's location. Hence, when a NY resident buys something from Amazon, the sale takes place where Amazon is based--in WA. The exception is if the seller has a "substantial business presence" in the buyer's state, in which case the sale is considered to have taken place there.

It's not even a question of the seller not being obliged to collect the tax. In the example, NY has no authority to tax sales completed in WA.

To get around this, many states have so-called use taxes that are typically equal to their sales tax rates. Use tax is collected when a resident brings a good bought out of state back into their state of residence. The rationale is that the use of the item is being taxed, not the sale of the item. In practice, states only routinely collect use taxes on cars, because it's typically part of the process of registering and titling a car in a new state.

Personally, I can't see how NY is going to be able to enforce this law. They can't compel businesses outside of their jurisdiction to collect and remit these taxes without some sort of federal law.

Re:How does this work?

Most states have Sales and Use tax. The use tax is for goods purchased for use within the state. So, the GP is correct: in most states you're supposed to pay taxes on goods purchased over the Internet or through catalogs or if you purchased it from a state with no sales tax.

If you look at most state personal income tax forms you'll generally see an area for calculating tax on goods purchased from other states or over the internet. I know off the top of my head that Wisconsin, Illinois, Colorado, Ohio and Utah all have some type of line for calculating Use tax on their personal income tax forms.

Re:Sounds like an extension of existing policies

Those are called Use Taxes. IMO, they should also be ruled unconstitutional in some cases:

INIAL, and I may be woefully incorrect about all of this, but, IIRC, the supreme court has ruled in the past that an interstate commerce tax is unconstitutional if it fails to violate either of the following:

1) must be compensating for an identifiable a tax burden. Decreased revenues due to 'lost sales' in other states do not count - clearly the NY interstate book tax would fail here.

2) The inter-and-intrastate taxes must be approximately equal. (You can't jack up the taxes for interstate commerce beyond what you demand of your own intrastate commerce. NY is probably okay here.)

The Use Taxes on vehicles /might/ be okay, provided the vehicles have a tax burden associated with them. And, vehicles do, though the burden probably ought not to be measured by the sales tax inside the state, but rather whatever vehicle-specific surcharges the state has.

Re:and the retailers respond...

Then we'll see a bunch of businesses pop up in New Jersey and Connecticut which will forward packages to New York. They're not the buyer or the seller, so they'd have no obligation to tell New York what they shipped to whom and when.

-jcr