How Amazon Laws Affect Sales Tax, Part 2







By Shane Ratigan

In part 1 of this two-part series, “Amazon Law” was defined and I presented the 3 types of Amazon Laws.

Amazon Laws passed in several states may or may not pass legal challenges, and these rules may never be adopted by the majority of states. In any event, the one unquestioned accomplishment of these rules has been to push the discussion surrounding sales tax obligations and remote sellers to the front. Advocates for and against collection of sales taxes on remote sales declare the existence of Amazon Laws indicates the desire for greater uniformity and a more reliable legal standard for collection, or not, of sales taxes on remote sales.

In the meantime, Amazon, Inc. agreed to begin collecting sales taxes in many states. Ironically, the agreements made by Amazon with states tend to preclude application of so-called Amazon Laws to Amazon, Inc. itself. Amazon’s evolving strategy in this space likely means a reduction in its litigation costs and an increase in collected sales taxes for some states, but for other remote sellers, the challenge to comply with remote seller laws remains an active one.

Effect of Amazon Laws

If there is one constant that remains at the heart of the remote seller/sales tax collection issue it is this: the U.S. Supreme Court consistently advises that the U.S. Congress has the constitutional power to regulate remote seller sales, but so far, Congress has done nothing. Yet, when you consider that the first modern sales taxes in the United States were established in the 1930s, any Congressional ennui concerning sales taxes is not new. The new phenomenon driving the current policy interest is the explosion of e-commerce.

As stated above, the rapidly expanding e-commerce marketplace, combined with the largest remote seller’s aggressive challenges to existing sales tax doctrine, dragged the issue from the pages of dusty industry and economic journals to the front page of The Wall Street Journal and The New York Times. One result of the exposure is a laser focus on the U.S. Congress and its constitutional ability to bring some measure of uniformity and reliability to this area of law. Currently, there are a few proposed pieces of legislation in the U.S. Congress that seek to do just that.

The Mainstreet Fairness Act, the Marketplace Equity Act of 2011 and the Marketplace Fairness Act of 2011 are all current active pieces of proposed legislation in Congress. The proposed legislation share common components: mandatory collection of sales taxes by remote sellers, a sales volume floor whereby smaller companies would be exempted, and finally, states would be required to improve administrative burdens for out of state filers.

What’s Next

The inevitability of Congressional action is hard to argue. Once the U.S. Congress dips its toe in the sales tax waters, all bets are off as to the future of state Amazon Laws. If the Congress satisfies the state’s interests, the current group of Amazon Laws could be rendered moot almost overnight and may be scrubbed from the books entirely. On the other hand, if Congressional action does not meet the requirements of the states, the patchwork of Amazon Laws could remain active and possibly expand to other states.

In December 2012, the Marketplace Fairness Act was inserted in an annual defense spending bill, but was struck before the law was voted on. The proximity of a Congressional remote seller sales tax agreement to actual law has never been narrower. Internet vendors and traditional vendors with an Internet presence should remain aware of states’ and federal efforts to radically change the way remote sellers transact sales, whether those efforts are called Amazon Laws or not.


Shane Ratigan

About the Author

Shane Ratigan, JD, LLM, is content compliance manager working in sales tax law and sales tax compliance with Avalara, a Software-as a-Service end-to-end sales tax solution for businesses of all sizes. Contact him at [email protected].


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