Amazon Continues to Present Taxing Challenge to Small Business Community

There’s a growing movement aimed at changing the way the world’s largest online retailer does business.  State governments are taking aim at Amazon with a variety of pending legislation that would either require Amazon to begin collecting sales tax or provide states with customer sales records. Either way, the prospective shakeup in online retail could have a profound impact on the small business community at large.

According to Jason Brewer, a spokesman for the Retailer Industry Leaders Association, the push for change simply boils down to leveling the playing field in retail. “A company the size of Amazon, with $14 billion in sales,” says Brewer, “should not be given a government-sponsored advantage over brick-and-mortar retailers.”

The principle of fairness aside, states are also looking for creative ways to compensate for budget shortfalls and ballooning deficits. As a result, state legislatures are actively searching for alternative sources of funding, and there’s no shortage of revenue to be collected by mandating a change from Amazon’s current practice of not collecting sales tax from its customers (except in the few states where it has a physical presence).

With online purchases now accounting for a tenth of all U.S. retail sales, small businesses have much to gain from the potential passage of Amazon-targeted legislation currently before many statehouses from Virginia to Colorado.

Alan Hazlett, owner of Camera Works in Colorado Springs, Colorado tells an NBC News affiliate in his community that the business he’s owned for 20 years continues to struggle in the midst of Amazon’s “unfair” advantage.

“It hurts local merchants.” Hazlett says. “It’s a 7.4 percent disadvantage to us because we have to charge the tax. There’s no way around it and we can’t absorb it.”

Hazlett is among the growing number of small business owners lobbying for a system that would require all online retailers to collect sales tax.

“There should be a way to fairly appropriate taxes between people who are buying their stuff over the internet and people who are buying it locally. Everybody should pay their share.”

Although small business owners and brick-and-mortar retail advocates largely support the movement, there’s no guarantee that legislators will gain enough traction to effectively make a dent in the status quo, considering how popular tax-free online shopping is with their constituency. Simply put, while small businesses may be the proverbial backbone of the U.S. economy, state legislators may ultimately lack the backbone necessary to oppose the mega online retailer when it comes to doing business at home.

In Tennessee, as just one illustrative example, Amazon is planning to build two new facilities at a cost of $139 million. The plants will reportedly infuse the local economy with 1,400 full-time jobs and another 2,000 seasonal positions. In return for setting up shop there, Amazon wants the state to excuse its practice of not collecting sales tax from Tennessee customers. Amazon, of course, has no objection to consumers paying sales tax. The online retail giant would just prefer that customers pay it directly to the state along with their yearly income-tax filing (as has been the law regarding mail-order shopping for decades). But if the number of customers who actually take this extra step come tax time was truly indicative of Amazon’s overall sales, the online retailer would have gone belly up years ago.

Consequently, legal experts who have publicly weighed in on the matter almost universally concur that state governments will have a monumentally difficult time forcing change at Amazon. And until that change actually happens, small businesses across the U.S. will remain at a stark and, ahem, taxing disadvantage.

About Michael Essany

Michael Essany is a former E! Entertainment Television host and nationally published author who was recognized by A&E Biography in 2005 as "One of America's Most Remarkable People." Michael currently serves as Vice President of Indiana Grain Company, LLC.
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3 comments
Jay Badenhope (Intuit)
Jay Badenhope (Intuit)

Thanks for the timely article, Michael. We asked our fans on Facebook the following question and were surprised to see the range of responses, with a majority favoring not to tax online sales.Jay B. (Intuit)

Roland
Roland

Is sales tax in the US the equivalent to VAT (value added tax) in many countries (or called GST - Goods and Services Tax in Australia)? I find it strange that this is a state tax and that there are differences in how much each state charges (if any). This sounds like an old tax system from the pre-Internet era. Sales tax or VAT should be a federal tax at one flat rate, just like it is in most countries. Another aspect I have just learned from this article seems bizarre to me: To expect the consumer to declare their sales tax debt voluntarily on the yearly income tax return!! Would it be any surprise that rarely anyone does this? How can this even be investigated other than manually comparing ALL purchase transactions from EVERY SINGLE business with EVERY SINGLE tax payer? There really is only one solution: A national sales tax administered by the Federal Government, at a flat rate that is the same for every business in the entire USA. This tax can only be mandated to be collected by the businesses themselves. This is how it has been done in most other countries. For the business, it is only a transactional process (they collect this tax on behalf of the Government, hold it in their account for quarterly payment). The sales tax the businesses had to pay for their own purchases can be offset against the sales tax collected, and only the difference is what they will need to pay to the Government. I don't understand where the problem lies? Having a sales tax system as it currently appears to be in place in the US creates competition amongst the states to not only fight for businesses to settle in their state, it also creates movement of people motivated to leave their home state for tax reasons. And clearly, it is unfair for any business to be exempt from collecting sales tax if others have to. So one flat rate (or various depending on the product segment) which is the same across all states, collected by every single business and passed onto the Government at tax time (quarterly for this type tax usually).Also, most citizens of other countries would be happy with sales tax as low as this seems to be in the US. Most European countries' VAT is above 20% of the value of the good or service.

Craig
Craig

What does a state need taxes from a company located outside of their state? The problem is sales taxes in general, taxes are to high. Utah carpenter