Reference no: EM132831971

Driving Away Businesses with the Amazon Tax

Amazon's online retail empire has been a contentious issue for state governments almost since the company's founding. Amazon makes billions of dollars selling everything from books to auto parts, often without ever collecting one cent of sales tax. This is all perfectly legal thanks to a 1992 Supreme Court ruling that exempts companies without a "substantial nexus" in a state from collecting the tax. But the rules are changing in states like Illinois where money is tight and government debt soars. The Land of Lincoln's so-called Amazon tax requires the site and other online retailers to collect the state's sales tax.

Illinois government officials hope the increased tax revenue will help close the state's crippling debt gap. However, the Amazon tax may end up having the opposite effect. For instance, the website FatWallet.com directs shoppers to various deals at online retailers across the Web. The company earns an affiliate commission for each sale it directs to these sites. Until the passage of the Amazon tax, FatWallet was located in Rockton, Illinois. When the site began to sever connections with many of its Illinois affiliates, FatWallet founder Tim Storm responded by moving his company and its 54 employees five miles up the road to Beloit, Wisconsin.

This same backlash has occurred in other states as well, sometimes to even more devastating effect. When Texas claimed Amazon's Dallas warehouse counted as a "nexus" and demanded $269 million in back sales taxes, the company simply shut down the warehouse. Although the Amazon tax has many opponents, supporters include brick-and-mortar retailers like Walmart and Target who have lobbied extensively for a federal law imposing a sales tax on online businesses. But their efforts may ultimately be in vain. In the end online retailers would still retain their advantage of convenience while physical stores would keep their local loyalties and the appeal of handling a product in person. While Amazon now collects sales tax in most states it still manages to evade sales tax due to additional loopholes.

1. Was it fair that online retailers like Amazon did not collect sales taxes?
2. Now that Amazon does collect sales tax in most states, what other loopholes has Amazon found to evade sales tax?
3. Should the U.S. Congress act to force online retailers to collect sales taxes?