June 2011 Archives

It’s a few months old, but a friend’s questions about sales tax prompted me to reread this article blasting Amazon’s stance on sales tax collection.

From the tone of it, you’d think Amazon were run by thieving fat cats, but really, Jeff Bezos was exploiting a 1992 SCOTUS decision declaring that out-of-state merchants must collect sales tax only if they have a physical presence in the state levying the tax. (Use of public services to deliver their product did not mandate collection.) Of course, the purchaser is still obligated to report the sales tax, but enforcement is difficult and compliance is low.

Amazon also breaks up its subsidiaries into smaller non-Washington based companies that then deal with Amazon (national) in order to avoid having a “physical presence” in many states, which would require collecting more sales tax. Ever wonder why the company that sell the Amazon gift cards has a sightly different legal name than the one that sends you the packages? Now you know.

Exploitative of the law? Yes. Criminal? No.

The points the article makes are convincing and numerous, but the most interesting nugget is how serious Bezos was about this advantage from the get-go. From a 1996 FastCompany article, on wanting to be near the Bay Area for talent:

I even investigated whether we could set up Amazon.com on an Indian reservation near San Francisco. This way we could have access to talent without all the tax consequences. Unfortunately, the government thought of that first.

Maybe Amazon could have been founded in Contra Costa county!