Melville House Books

Jake Grovum of Stateline.org takes a comprehensive look at the “Amazon tax” situation in this thoughtful essay. As Grovum notes, the bottom line is that despite the fact that “shopping online can be a handy way to avoid paying sales tax on books, CDs and electronics,” online shoppers are nonetheless “still supposed to pay tax on these purchases.” And given the economic crisis, more and more states “desperate for revenue” are struggling to find ways to get people to live up to that obligation. The states also say it’s a question of fairness: “Main Street retailers have to collect sales taxes, and leaving the Internet as a tax-free shopping zone puts them at a disadvantage.”

But the effort has “ignited a tax war with the huge online retailer that is the primary target” of such efforts: Amazon.com. The company has fought back vociferously:

In February, Colorado passed a law requiring Amazon.com and other Internet retailers to mail notices to customers reminding them of their tax liabilities. Amazon responded by shutting down its affiliate program in Colorado, effectively closing thousands of small businesses that were marketing Amazon’s products over the Web.

Then, last week, Amazon sued North Carolina after the state’s department of revenue asked the company to turn over the names and addresses of its North Carolina customers – information the state would need if it were to try to collect unpaid taxes.

Amazon also shut down its affiliates in Rhode Island after a sales tax measure was passed there, and Amazon is suing the New York State for forcing it to collect sales taxes there, Grovum says there are “as many as 15 more cash-strapped states weighing whether to pass Amazon taxes of their own….” Meanwhile other big online retailers — such as Target and Barnes & Noble — have agreed to collect sales taxes, and Amazon is becoming more and more solitary even as it becomes more and more vehement in its fight.

But even as Amazon finds itself fighting more and more states, “the issue points to a larger flaw in the country’s tax system — one that’s still based on agriculture and manufacturing rather than services,” says Grovum. Or, as one analyst tells him, “This is an issue that has to be dealt with. Basically, to avoid running a 20th-century tax system in a 21st-century economy.”

Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.