States and big-box retailers to Amazon.com: Pay up!

Last month I wrote about Amazon.com‘s hasty exit from Texas when presented with a bill for $269 million in uncollected sales taxes (read here). Since then other states and some of the nation’s biggest retail chains have been turning up the heat on the online giant to collect sales taxes as state budget woes mount.

Somewhat opportunistically, Wal-Mart Stores and Target have added their considerable heft to the campaign to close the Internet sales tax loophole. (Legally, online-only merchants are only required to collect sales taxes in states where they have a physical presence, such as stores.) Amazon currently collects sales taxes in just five states: Kansas, Kentucky, North Dakota, its home state of Washington, and New York. When its tax-free status is challenged by a state, Amazon’s strategy appears to be to pull up stakes and cut ties there as it has done in Hawaii, North Carolina, Rhode Island, and Texas.

With stores in every state, Wal-Mart and Target must collect sales taxes on online purchases. The two leading discounters have joined other chains, including Best Buy and Sears, to call for a leveling of the sales tax playing field. The big-box merchants have thrown their support behind the Alliance for Main Street Fairness (AMSF) to lobby state legislatures to change the Internet tax law. Illinois recently passed a law requiring Amazon to collect sales taxes if it employs marketing affiliates in the state. In response, Amazon cut ties with some 9,000 affiliates in Illinois to avoid collecting taxes there. Other states are considering similar legislation. In Austin two bills — supporting and opposing the loophole — were introduced in the Texas House this month. In all about a dozen states — including (perhaps not coincidentally?) Arkansas and Minnesota, home to Wal-Mart and Target, respectively – are putting pressure on Amazon to collect sales taxes.

While AMSF has framed the issue as one of David vs. Goliath, with local mom-and-pop stores pitted against online powerhouses like Amazon, big-box retailers also lose out to sales-tax-exempt Amazon. The National Retail Federation — which represents retailers of all sizes – has long supported closing the loophole (see here).

With states desperate for revenue, Amazon and other online-only merchants may find their tax-free status increasingly endangered.

Alexandra Biesada

Alexandra Biesada shops everyday, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat for Hoover’s since 2001. Follow her on Twitter.

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