Prime Day Makes the World a Better Place – Wacky Tax Wednesday
- Sales and Use Tax
- Jul 15, 2015 | Gail Cole
It’s not just about a good deal or two. It’s about a better life.
Today, July 15, 2015, Amazon celebrates its 20th anniversary with the first ever Prime Day. If nothing else, it is a savvy business and marketing move for the Prime program, which entitles members to free and reduced shipping and numerous deals for a mere $99 per year. The global Internet seller predicts the event will eclipse Black Friday in deals and sales, but it will do more than that. By spreading the word on the benefits of Amazon Prime, membership will increase and the world will become a better place. At least that’s the feeling I get upon reading the press release.
Artists from Prime-eligible countries around the globe have been commissioned to spread the word with public art pieces. Members are invited to “share how Prime helps enable happy moments,” so photos of blissful Prime members frolicking with their dogs and children are filling the company’s Facebook page. There are promises of $10,000 cash rewards and photographic fame for one Prime Member in each and every (Prime-eligible) country. Eclipse Black Friday? I’ll say.
There’s even a ripple effect. Walmart is fighting back with online discounts on more than 2,000 products. Its free shipping will be expanded for the next 30 days, “at least.” That will undoubtedly please customers, although it may not have the staying power needed to improve the world. Then again, with more people home on their computers there will be fewer customer stampedes....
But you know the drill. What I really burn to know is not what kind of deals I can get but what Prime Day means for sales tax.
If all goes as planned, sales and Prime memberships will rocket on Prime Day. This will undoubtedly make the world seem better to Amazon and its investors, as well as the businesses selling through the Fulfillment by Amazon program – an unparalleled expansion tool for online merchants. The program grants third-party sellers access to Amazon’s infrastructure and logistics; for program participants, Amazon stores products, takes, fulfills and delivers orders, and provides customer service. A majority of FBA sellers surveyed admit to at least a 20% increase in sales since joining. It seems a no-brainer and a win-win, enabling Amazon to offer a wider variety of products and small businesses to sell more than they could on their own.
The caveat is sales tax. Participation in Fulfillment by Amazon almost guarantees a seller will trigger a sales tax obligation in new, and perhaps multiple, locations. There are many good reasons to not store inventory in your basement or spare bedroom, but at least when products are under one roof and shipped by general delivery, sellers can feel fairly secure in the state of their sales tax compliance. Not so when products are spread across Amazon’s vast and ever-expanding network of warehouses. Check out the FBA Seller’s Guide to Sales Tax for more information.
Prime members have “unlimited streaming of tens of thousands of movies and TV episodes, more than one million songs, more than one thousand playlists …” If Prime membership expands as Amazon seems to want, more people in more states and countries will be streaming. Maybe this will mean less time for mean and violent acts? Just a thought.
Few if any people I know limit their streaming to Amazon’s services. Fans of House of Cards and Orange is the New Black subscribe to Netflix, folks who just can’t get enough of certain television shows get Hulu, and those who must know the fate of Jaimie and Claire pay for Starz (mea culpa).
Many states are increasingly broadening sales tax to services, including streaming services and their ilk. If a DVD, CD or video game purchased at a store is subject to sales tax, why not a streamed movie or show or game? Netflix streaming services are subject to tax in numerous states. Yet other states, like California, have specifically exempted the streaming services offered by Netflix and others.
On the global front, more countries are applying transition tax to a growing number of digital goods and services. For example: Australia now imposes General Sales Tax (GST) on foreign sellers of digital goods and services; in Korea, value added tax (VAT) is now imposed on sales of electronic services such as films, games, and music sold on open markets with off-shore servers. Learn more about sales tax on digital goods and services.
On Prime Day, members will receive $30 off a Kindle and $60 off a Fire HD 7 or Fire HD 7 Kids Edition. It may therefore be time for me to embrace this technology and stop stealing my husband’s Kindle (which will make our marriage more harmonious. Points for Prime Day!). If I can make the leap, I feel sure others will too – meaning more people in more states will be buying and renting e-books.
Electronic books are subject to sales tax in approximately 25 states, including Maine, Minnesota and Ohio. Yet in many states there is still disagreement over exactly how an e-book should be defined and taxed: is it the same as its physical counterpart, or something different? This question has also arisen in the European Union.
Most EU countries provide a reduced VAT rate for paper books. For example, the general VAT rate in France is 20% but the rate for books is 5.5%, while in Luxembourg the reduced rate is 3% as opposed to 17%. Indeed, Amazon.com entered the EU market through Luxembourg in part in order to take advantage of that 3% rate. However, since VAT reform commenced at the start of 2015, sellers must collect the rate in effect at the location of the customer.
Last spring, the highest court in the European Union concurred with a previous decision by the European Commission: members must apply their normal rates to electronic books instead of a reduced rate. The rulings defined e-books as “electronically supplied services” because they are read on tablets and computers; under EU law, “reduced VAT rates can apply only to goods, not e-services” (WSJ).
France and Luxembourg agreed to comply with the verdict; however both will work towards changing EU policy with respect to e-books. According to French Culture Minister Fleur Pellerin, “We will continue to push for what is called technological neutrality, meaning the same taxation for books, irrespective if they are on paper or electronic.” Amazon certainly shares that view, and even the European Commission is open to that possibility. Read the court rulings on France and Luxembourg.
This is a fascinating topic and I could go on, but it’s time for me to sign off. I have to do my part to make the world a better place with some deal-snatching online shopping. Get out of my way.