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Amazon Tax Revenue Is Filling State Coffers

  • Feb 25, 2013 | Gail Cole

 Online Sales Tax Revenue.

Amazon.com, the online retail giant, now collects sales tax on sales shipped to Arizona, California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas, and Washington. The company began sales tax collection in California, Pennsylvania, and Texas just last year, and tax revenue generated by online sales is starting to fill those states' coffers. 

But the coffers may not be filling as much as hoped. An influential 2009 study by the University of Tennessee -- State and Local Government Sales Tax Revenue Losses from Electronic Commerce -- predicted that California would "fail to collect more than $1.4 billion in 2010 and more than $8.7 billion over our six year forecast horizon" if online sales tax wasn't collected. It was estimated California would lose out on $1.9 billion in 2012.

In reality, the numbers are lower. The California Board of Equalization has reportedly announced that "it took in $96.4 million in September-December 2012" the first full quarter during which it collected online sales tax from large e-tailers. That means California is "well on its way to meeting its forecast budget of $107 million in new e-taxes for the fiscal year that began July 1, 2012… ." Impressive, but not the $1.9 billion predicted by the University of Tennessee study.

According to Professor William Fox, who headed the Tennessee study, one explanation for the discrepancy in the study's estimates and the actual collections may be that "smaller e-retailers often are exempt from collection." He noted that "[b]roader trends support the study's findings, … including the fact that sales tax collections have lagged overall economic growth." That leads him to believe "that smaller e-retailers often are exempt from collection."

Jeff Eisenach of Navigant Economics, in a study for NetChoice (a trade group that opposes online taxation), worries that "the estimates being used are overstating reality… ." This is potentially problematic when state politicians use "figures similar to that of the Tennessee study as a basis for building future Internet sales tax receipts into their budgets." He advises being "conservative rather than hopeful."

Marketplace Fairness

Any additional tax revenue is welcome to states, of course, but the issue is greater than that. The Chicago Tribune points out that the "Tennessee study fueled states' demands in recent years for more tax power over online commerce." National legislators are currently debating the Marketplace Fairness Act of 2013; S. 336 in the Senate and H.R. 684 in the House would "restore States' sovereign rights to enforce State and local sales and use tax laws, and for other purposes." If it passes, it would allow states to require certain online vendors to collect sales tax even when they don't have a physical presence, as current law requires.

Yet the creep towards requiring remote sellers to collect sales tax seems to be happening even without federal legislation like the Marketplace Fairness Act of 2013. Amazon will start collecting and remitting sales tax in Connecticut, Massachusetts, New Jersey, and Virginia this year; if some Indiana lawmakers have their way, the Hoosier state will also be on that list. The world's largest online retailer is scheduled to start collecting sales tax in Tennessee in January 2014, and in South Carolina in 2016. And in both Michigan and Florida, lawmakers are currently considering requiring an online sales tax.

Amazon supports the Marketplace Fairness Act of 2013, but that doesn't mean it universally agrees to collect sales tax everywhere. Both Amazon and Overstock are currently battling the state of New York over its remote sales tax collection law, and Amazon is flouting a recent Georgia law that requires it to collect sales tax.

Are you prepared for online sales tax?

photo credit: 401(K) 2013 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.