Are You an On-Line Retailer? Amazon Helps Fight the Sales Tax Battle

  • Because of the various states’ budget crisis and growth of on-line sales over the past decade, a few states have been passing laws in an effort to collect sales tax from -on-line retailers.  To date, these states have had little success.

    Most recently, the battle lines have been drawn between Amazon, and North Carolina.  Last year, NC passed a law requiring on-line retailers to collect sales tax on products sold through NC marketers and affiliate marketers and referral sites.  Currently, the NC Department  of Revenue has put this number at greater than 350.

    During an audit with Amazon last December, NC sate auditors requested detailed information related to Amazon’s sales to NC residents.  The request was for the NC sales dating back to August 2003.  Amazon, citing privacy laws, refused to turn over the information.

    Last month NC announced that on-line retailers must sign an agreement by August 31, in which they agree to collect sales tax from on-line sales to NC residents.  If they do not, the NC revenue Secretary, Kenneth Lay, has stated NC would go after them for uncollected sales tax dating back to August 2003.  This is well before the passage of the law.

    As with all things that end up in court, the outcome is any one’s guess.  Whatever the outcome, you can be sure the decision will be appealed by the losing party.    In 1992, the US Supreme Court ruled states could not force retailers to collect sales tax, unless the retailer had a presence in that state.  The court reasoned that because the rates in every state, city and county and the products or services taxed were all different, it would be impossible for a retailer to keep track and conform to all the various sales tax laws and rates across the country.

    The two states at the forefront of, of this attempt to collect sales tax from on-lin retailers are NC and Colorado.  Amazon’s strategy to date, when faced with these new state laws, has been to discontinue it’s affiliate marketing program in those states. .  This action effectively shuts down and hurts the small business owners, whose business model is selling products via, affiliate marketing programs such as ones like Amazon.

    Currently more than a dozen other cash strapped states are debating whether to try and pursue the collection of sales tax from on-line retail sales.  You can bet that other states will be closely monitoring the court case between Amazon and NC.

    Jake Grovum does a great job outlining this issue in his article The Amazon Tax War Escalates, posted on

    If you’re in th e-commerce business, you’ll want to keep a close eye on these developments.