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France and Amazon: The Certainty of Death and Taxes

  • Nov 13, 2012 | Gail Cole

Benjamin Franklin was a wise man, and his astute observation has endured. The titular quote was lifted from a letter he wrote to a French friend in 1789, when the United States of America was a fledgling and the streets of Paris ran with blood from the revolution. He wondered if his friend was still alive. He hoped his new country would endure. But he recognized that nothing in life is certain except death and -- experienced statesman that he was -- taxes.

State and federal governments use tax revenue to build and maintain infrastructure and services for citizens. Monies generated by state sales tax and use tax are integral to state budgets, which is why when people spend less, state revenue shrinks. The relatively new existence of internet retailers raises an interesting question: when a retailer doesn't have a physical presence in a state but does do business with the residents of the state, are the transactions liable for sales tax?

Many states insist that internet retailers should collect and remit sales tax in their states. Their persistence in the matter has led to the creation of the Streamlined Sales and Use Tax Agreement (SSUTA), which strives to "simply and modernize sales and use tax administration… ." To date, there are twenty-two full members of the SSUTA and two associate members.

Online retailers have long maintained that, unless they have nexus in a state, they are not responsible for collecting and remitting sales tax. The U.S. Supreme Court has backed this stance in the past, in Quill Corp. v. North Dakota. Still, the future of this stance is uncertain. Online retail giant Amazon.com is now collecting and remitting sales tax in eight states.

Now France wants a share of tax revenue, though it is seeking corporation tax, not sales tax. Amazon has announced that the French authorities are demanding $252 million in back corporation taxes, interest and penalties. Why? Because of "the allocation of income between foreign jurisdictions."

Many United States companies channel sales through countries with low taxes, such as Luxembourg. The small country nestled between France, Belgium and Germany "offers tax breaks to companies which base themselves there."  One could argue that, being such a small country, it needs some enticements to draw business there. Think Switzerland and banking, or Scotland and whisky.

Forbes.com has this reaction to the news: "Facepalm." It goes on to point out that, with the creation of the Single European Market,

"… the law deliberately encourages a company to treat the single market as a single market… . Have one company in one country in the EU and then sell to the other 26 [countries] from that one company in one country. That's part of the point of the legal structure. And you pay corporation tax in that country where you've got that one company. And that is simply it: selling something from Luxembourg into France does not attract French corporation tax."

Amazon agrees with that assessment, and has vowed to fight the French on this. If it comes to that, it may well be joined in the courtroom by Google, which will reportedly soon be handed a one billion Euro tax bill "to make up for revenues from France routed through Google Ireland… ." This news was broken by the French weekly Le Canard Enchaîné, and later repeated in the daily Le Monde.

And so the wisdom of Franklin prevails.

photo credit: satosphere via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.