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It's a clusterfuck of epic proportions. Let's say you use Amazon Fulfilment (FBA): 1. Does just storing goods in a state establish tax nexus in that state? Mo

by c2h5oh 9y ago

It's a clusterfuck of epic proportions. Let's say you use Amazon Fulfilment (FBA): 1. Does just storing goods in a state establish tax nexus in that state? Most states claim it does, but it hasn't been tested in court. 2. Assuming it does, Amazon keeps moving your goods between warehouses - how do you keep track which states do you have nexus in and need to have a business license in? 3. Assuming you figured it out, in some places you need to register per county, not per state (I believe it was 10+ registrations in one state, can't remember which). With all the locations with Amazon warehouses you're looking at 25+ licences. Possibly 40+. 4. Let's say you're willing to handle the 40+ business licences you're supposedly required to hold, you have to file 40+ tax returns with different deadlines, make 40 payments and keep track of law changes. Also you have to pay to get a business license and often you have to pay to keep it active every year. 5. Add being a foreign seller (let's say Canadian): - out of all the states with Amazon warehouses only 2 will accept a non-us business address when registering for a business license. The others either don't allow you to select a country, require you to select a US state or only accept The One True Zipcode Format. - taxes you remit using ACH will also routinely explode due to a non-US address on your US bank account. - sure, you can file a paper registration (usually at 3+ times the registration fee), unless the state only accepts a XFA PDF form that generates a scannable code. One DOR representative told me the only way I'm getting a licence in that case is if I show up in person. - government issued photo id is sometimes required. Guess which government often is the only one that exists ;-) By comparison in EU you collect VAT per destination country, remit it to your local tax office indicating where it should go and forget about the whole thing.

mysterypie 9y ago
Possible solutions (speaking about the US of course): 1. Let the federal government establish a uniform national sales tax and outlaw all state and local sales taxes. 2. Even better, eliminate sales taxes entirely. Replace it with higher income taxes or property taxes. Yes, yes, I know, regressive, not progressive, taxing consumption is better, but there's something to be said about an economy without crazy levels of bureaucracy and regulations. 3. Just keep fighting off the states until they accept that Internet orders should be non-taxable. The Internet has completely changed the business models of music delivery, porn, and newspapers. No reason it can't eventually convince states to back off on sales taxes.
- moduspol 9y ago
  Something tells me "brick and mortar" won't be big fans of option 3.
- lostapathy 9y ago
  Property taxes are fairly progressive, from where I sit. Richer people have more assets and would pay more taxes.
  - ams6110 9y ago
    Except there is no accounting for income. So if I'm poor, or become poor, I still have to pay the assesed property tax on any property I own. I may be forced to sell the property as a result. Property tax works against poor people being able to own property or keep property they own. This is why elderly people who may own their homes free and clear can still be forced out of them when they retire or become disabled.
    - tmnvix 9y ago
      > ...if I'm poor, or become poor, I still have to pay the assesed property tax on any property I own. Are you really poor if you own valuable assets?
      - wils1245 9y ago
        Speaks to a problem of means testing property taxes on anything other than the property value - how to define poor in a way that can’t be games by skillful accounting?
    - function_seven 9y ago
      A fix to this would be to lien the property with the unpaid taxes, but not force the sale. Eventually, the owner will sell or die. The tax liens can be recovered at that point. For an example tax of 2%, the property could sustain the liens for decades, allowing the owner to keep control of the land, even if they're unable to pay the taxes owed. The revenue to the government could be provided by bonds backed by those liens. Maybe require some portion of the tax to be paid in cash, and some penalty rate on the liens, to encourage payment of taxes by those that can afford them?
xur17 9y ago
This is a really good write up of the problem. For me the issue isn't even about having to charge the consumer tax as a marketplace seller that uses FBA. It's the logistical overhead of registering, tracking, and paying sales tax 40+ different ways 4x per year. This essentially makes it impossible for smaller sellers to compete.
delinka 9y ago
Maybe states and localities need to put the onus on citizens. Legislate at the federal level for reporting sales to some central agency (similar to how employers report salaries to the IRS; perhaps limiting the reports to categories of items and total amount per period [month, quarter, year, w/e]), states query the database and issue a report to each citizen to accompany their state income tax filings. Add any unpaid sales & use amounts to the income tax bill.
- ghaff 9y ago
  >Maybe states and localities need to put the onus on citizens. They do. At least in most states buyers are supposed to pay use taxes on purchases. >some central agency Sorry, but that's an absolutely awful idea. I do NOT want all my purchases reported to some federal agency.
  - pc86 9y ago
    Don't worry, surely the government will save us.
- c2h5oh 9y ago
  - Create a new class of business licence that is valid for entire country for sales outside of a brick and mortar store - online/phone/carrier pigeon. - Have sellers collect tax as if they had nexus in every state in US - it's horrible with thousands of different rates, but at least it's a solved problem. Removes Amazon advantage of shipping across state lines to avoid sales tax. - Have sellers file a single tax return with a per-state breakdown.
ChuckMcM 9y ago
That is an excellent summary and why the solution should be Federal law and not a State law. The EU model would work well in that case. However, the actors (States) aren't exactly operating in a reasonable way. What I speculate is the case is that people who you can obligate to pay taxes and yet cannot vote on those taxes make the best targets. Taxation without representation has been a sore spot for quite a long time :-). The key here is the business license. By requiring it, the State, County, and City all get a bite at the Apple and can add their own level of tithe to the requirements. Whether it is that you meet their ADA requirements, their street address requirements, or their officer disclosure requirements, all things to generate revenue from "business" which when that business is out of state become exceptionally burdensome. Again, the only solution I can see is a Federal law that can supercede any local law when the subject party is not a resident in the same jurisdiction. But they states will lobby very hard against that happening.
- Spooky23 9y ago
  Amazon and the third party sellers aren’t being taxed. The consumers are. Amazon could setup a big warehouse complex in South Dakota or something and avoid this problem — but they want to benefit from local distribution.
  - xxgsdzfwser 9y ago
    No, the businesses are taxed, and they pass the cost to the consumer. The "sales tax" itemization the end of the receipt is for informational purposes only.
    - ghaff 9y ago
      They are collecting a sales tax on behalf of the taxing government from the buyer and are then legally required to pass that money on. Of course, money is fungible so the revenue including sales tax goes into the big bucket and then money has to be taken out of that bucket to pay the tax. But in principle, they're just taking in money and passing it through.
jimbokun 9y ago
Sounds like there is a Commerce Clause case to be made in there somewhere?
- zabuni 9y ago
  There has always been. It hinges on the whether the business has a nexus by storing product in an Amazon warehouse. The problem is: a) States really really hate that part of the Constitution, and verdict in Quill Corp. v. North Dakota, which led to the inability of states to collect tax across state lines. Up to the point of passings laws that directly contradict that Supreme Court verdict. So you're going to get sued, it's just a matter of how long it takes to make its way through the courts. b) They piss off enough states, the state governments complain to their Senators and Representatives, and suddenly we have an arm of the IRS federally given the power to collect state sales tax. Which means the IRS gets to know everything you bought online. Amazon agreed to collect taxes to mollify the states, so they wouldn't start the above two options. It's a giant company, so it can take the hit of compliance. It also puts them at a competitive advantage over smaller retailers. Their margin is Amazon's opportunity after all! If they get forced, I suspect Amazon might even get into the business of determining sales tax required for third parties, on that county by county basis. Make it an API, price it by the lookup, more business for them. Call it Compliance as a Service (CaaS).
  - ghaff 9y ago
    And presumably work out some deal where they can transparently remit the sales tax on behalf of the sellers. That's probably the bigger deal than determining the amount which I imagine Amazon could do pretty easily. In terms of what they sell themselves, they were well on their way to having a presence in every state anyway between warehouses, Amazon locker, etc. So they pretty much rolled on something that was going to be a moot point in a few years anyway.
Spooky23 9y ago
The clusterfuck is Amazon, who clearly has the ability to collect taxes on FBA product. They fought unsuccessfully to resist their own tax obligations, and pushed liability for tax, counterfeit product, and other issues to an army of third parties. They get to benefit by pushing phoney “third party sales” that they fulfill to avoid customers paying tax.
- c2h5oh 9y ago
  Collecting the taxes from a seller perspective is a solved problem - 10 minutes of Amazon account setup. Knowing if you have to collect those taxes, remitting them according to 50 sets of rules, often contradictory.. is a whole different story
  - astura 9y ago
    It's way more than 50 sets of rules considering in some states (like NY) every single municipality has the ability to levy sales tax and those taxes can get complicated. For example, in some counties in NY county sales tax is charged on clothes and some counties it isn't but state tax is always charged on clothes. The rules are always changing too.
wang_li 9y ago
These issues of keeping track of stuff seem utterly trivial compared to what Amazon already does. I fail to see why this is a problem. I also fail to see why requiring businesses to follow the law is a bad thing. If it's too difficult, then talk to the legislators, don't just ignore the rules and regulations in place.
- anonymous5133 9y ago
  The reason they complain so much is because it just ads extra cost to them because of audits.
- Jemmeh 9y ago
  Imagine having to hold a seller's license in every state just to sell on eBay. A lot of people who sell on Amazon are also just 1 person businesses. It's a lot of extra paperwork, time, and cost for one person.
  - c2h5oh 9y ago
    Even with 50 people it would still be a significant burden
anonymous5133 9y ago
I work in sales tax law and my theory is that the states will agree that it does not create nexus because the seller is not DELIBERATELY deciding where the product is being stored. In other words, it is impossible for the seller to even know which state they have nexus with.
- robryan 9y ago
  Amazon provide reporting which allows you to work out which states you have stock in. It is by no means straightforward but certainly can be done.
  - tbyehl 9y ago
    My understanding is FBA inventory is fungible, so how would that work when Amazon fulfills an order from inventory that another seller warehoused?
    - robryan 9y ago
      As I understand it California for example would claim you have a nexus once any stock at all has been moved into an Amazon warehouse in their state. In that case all you would need to see is that Amazon has moved some of your stock into CA and then you would have a nexus and owe sales tax on any sales to customers in CA that your business does, regardless of where that stock comes from. To clear yourself of this nexus requirement for CA you would need to have had no stock stored there for a 6 month period. Obviously whether Amazon internally transporting one unit of your stock to CA for a few days constitutes a "substantial presence" is an untested legal question.
nkurz 9y ago
My impression (as a failed American businessperson who aimed for full legal compliance) is that successful businesspeople (at least in America) tend to accept that full legal compliance is impossible and instead worry only about the risk of noncompliance. As such, I think the much more common approach is to ignore even the clear local requirements until there is a demonstrated downside to doing so. Proactively worrying about compliance on the edge cases where no one is currently losing expensive losing lawsuits is viewed as somewhere between insane and suicidal. Are you perhaps from a more traditional country (or part of the US) where obeying the law still has a strong moral component?
- c2h5oh 9y ago
  > successful businesspeople (at least in America) tend to accept that full legal compliance is impossible and instead worry only about the risk of noncompliance That's because it's cheaper to settle than to be compliant as a result of prosecutors willing to settle for a fraction of what would otherwise be due, but avoiding a long trial. If government is not involved businesses often settle for more than would otherwise be due, to avoid a long and costly trial. Curious.. Anyway, in most civilised world the opposite is true. Non-compliance can be VERY costly. Going back to your question: I've run my first businesses in EU and I still have EU mindset. I'd rather have the piece of mind knowing that I'm compliant. And as much as it's going to sound weird in the light of Apple tax "optimisation" I can afford to pay my taxes, even if I don't live in US and don't benefit from them in any way and know most of them are going to be wasted.
  - nkurz 9y ago
    That's because it's cheaper to settle than to be compliant as a result of prosecutors willing to settle for a fraction of what would otherwise be due That's likely true, although I think the dominant factor is probably the laxity of enforcement. That is, even if the penalties far exceeded the cost of compliance, if your chances of being caught are small enough, the economics (if not the morality) favor noncompliance. There is also the problem that attempting to be compliant can call attention to your noncompliance, thus perversely increasing that chances that you will be penalized. Anyway, in most civilised world the opposite is true. Non-compliance can be VERY costly. In my mind what is worse about the current US system is that once one accepts the existence of contradictory regulatory regimes combined with lax selective enforcement, most of leverage that would keep the system sane is lost. If the penalties are severe and regularly enforced, there is a much stronger feedback to make full compliance efficient, or at least possible. I'd rather have the piece of mind knowing that I'm compliant. While it may provide peace of mind, realize that there is almost no way to know all the rules, and you are almost definitely noncompliant with regard to some of those you do not know. There are likely agencies that believe they have jurisdiction over you that you've never even heard of. In my case of running a vegan frozen dessert business in California, while my research had revealed that the California Dairy Board reserved the right to regulate non-dairy frozen desserts (under the theory that a consumer might be confused into thinking that they were a dairy product) I was surprised when the federal Food and Drug Administration found me noncompliant for failing to properly register under the theory that since we had purchased some of our ingredients from another state (cocoa powder) we were engaged in interstate commerce and thus subject to their regulatory burden. While we ended up not paying any fines, and while the agents involved were polite and respectful, there were several painful days wasted on record searches and interviews with all of our key employees.
thescriptkiddie 9y ago
This is a pretty good argument for VAT over sales tax.

by c2h5oh 9y ago

mysterypie 9y ago

Possible solutions (speaking about the US of course): 1. Let the federal government establish a uniform national sales tax and outlaw all state and local sales taxes. 2. Even better, eliminate sales taxes entirely. Replace it with higher income taxes or property taxes. Yes, yes, I know, regressive, not progressive, taxing consumption is better, but there's something to be said about an economy without crazy levels of bureaucracy and regulations. 3. Just keep fighting off the states until they accept that Internet orders should be non-taxable. The Internet has completely changed the business models of music delivery, porn, and newspapers. No reason it can't eventually convince states to back off on sales taxes.

moduspol 9y ago
Something tells me "brick and mortar" won't be big fans of option 3.
lostapathy 9y ago
Property taxes are fairly progressive, from where I sit. Richer people have more assets and would pay more taxes.
- ams6110 9y ago
  Except there is no accounting for income. So if I'm poor, or become poor, I still have to pay the assesed property tax on any property I own. I may be forced to sell the property as a result. Property tax works against poor people being able to own property or keep property they own. This is why elderly people who may own their homes free and clear can still be forced out of them when they retire or become disabled.
  - tmnvix 9y ago
    > ...if I'm poor, or become poor, I still have to pay the assesed property tax on any property I own. Are you really poor if you own valuable assets?
    - wils1245 9y ago
      Speaks to a problem of means testing property taxes on anything other than the property value - how to define poor in a way that can’t be games by skillful accounting?
  - function_seven 9y ago
    A fix to this would be to lien the property with the unpaid taxes, but not force the sale. Eventually, the owner will sell or die. The tax liens can be recovered at that point. For an example tax of 2%, the property could sustain the liens for decades, allowing the owner to keep control of the land, even if they're unable to pay the taxes owed. The revenue to the government could be provided by bonds backed by those liens. Maybe require some portion of the tax to be paid in cash, and some penalty rate on the liens, to encourage payment of taxes by those that can afford them?

xur17 9y ago

This is a really good write up of the problem. For me the issue isn't even about having to charge the consumer tax as a marketplace seller that uses FBA. It's the logistical overhead of registering, tracking, and paying sales tax 40+ different ways 4x per year. This essentially makes it impossible for smaller sellers to compete.

delinka 9y ago

Maybe states and localities need to put the onus on citizens. Legislate at the federal level for reporting sales to some central agency (similar to how employers report salaries to the IRS; perhaps limiting the reports to categories of items and total amount per period [month, quarter, year, w/e]), states query the database and issue a report to each citizen to accompany their state income tax filings. Add any unpaid sales & use amounts to the income tax bill.

ghaff 9y ago
>Maybe states and localities need to put the onus on citizens. They do. At least in most states buyers are supposed to pay use taxes on purchases. >some central agency Sorry, but that's an absolutely awful idea. I do NOT want all my purchases reported to some federal agency.
- pc86 9y ago
  Don't worry, surely the government will save us.
c2h5oh 9y ago
- Create a new class of business licence that is valid for entire country for sales outside of a brick and mortar store - online/phone/carrier pigeon. - Have sellers collect tax as if they had nexus in every state in US - it's horrible with thousands of different rates, but at least it's a solved problem. Removes Amazon advantage of shipping across state lines to avoid sales tax. - Have sellers file a single tax return with a per-state breakdown.

ChuckMcM 9y ago

That is an excellent summary and why the solution should be Federal law and not a State law. The EU model would work well in that case. However, the actors (States) aren't exactly operating in a reasonable way. What I speculate is the case is that people who you can obligate to pay taxes and yet cannot vote on those taxes make the best targets. Taxation without representation has been a sore spot for quite a long time :-). The key here is the business license. By requiring it, the State, County, and City all get a bite at the Apple and can add their own level of tithe to the requirements. Whether it is that you meet their ADA requirements, their street address requirements, or their officer disclosure requirements, all things to generate revenue from "business" which when that business is out of state become exceptionally burdensome. Again, the only solution I can see is a Federal law that can supercede any local law when the subject party is not a resident in the same jurisdiction. But they states will lobby very hard against that happening.

Spooky23 9y ago
Amazon and the third party sellers aren’t being taxed. The consumers are. Amazon could setup a big warehouse complex in South Dakota or something and avoid this problem — but they want to benefit from local distribution.
- xxgsdzfwser 9y ago
  No, the businesses are taxed, and they pass the cost to the consumer. The "sales tax" itemization the end of the receipt is for informational purposes only.
  - ghaff 9y ago
    They are collecting a sales tax on behalf of the taxing government from the buyer and are then legally required to pass that money on. Of course, money is fungible so the revenue including sales tax goes into the big bucket and then money has to be taken out of that bucket to pay the tax. But in principle, they're just taking in money and passing it through.

jimbokun 9y ago

Sounds like there is a Commerce Clause case to be made in there somewhere?

zabuni 9y ago
There has always been. It hinges on the whether the business has a nexus by storing product in an Amazon warehouse. The problem is: a) States really really hate that part of the Constitution, and verdict in Quill Corp. v. North Dakota, which led to the inability of states to collect tax across state lines. Up to the point of passings laws that directly contradict that Supreme Court verdict. So you're going to get sued, it's just a matter of how long it takes to make its way through the courts. b) They piss off enough states, the state governments complain to their Senators and Representatives, and suddenly we have an arm of the IRS federally given the power to collect state sales tax. Which means the IRS gets to know everything you bought online. Amazon agreed to collect taxes to mollify the states, so they wouldn't start the above two options. It's a giant company, so it can take the hit of compliance. It also puts them at a competitive advantage over smaller retailers. Their margin is Amazon's opportunity after all! If they get forced, I suspect Amazon might even get into the business of determining sales tax required for third parties, on that county by county basis. Make it an API, price it by the lookup, more business for them. Call it Compliance as a Service (CaaS).
- ghaff 9y ago
  And presumably work out some deal where they can transparently remit the sales tax on behalf of the sellers. That's probably the bigger deal than determining the amount which I imagine Amazon could do pretty easily. In terms of what they sell themselves, they were well on their way to having a presence in every state anyway between warehouses, Amazon locker, etc. So they pretty much rolled on something that was going to be a moot point in a few years anyway.

Spooky23 9y ago

The clusterfuck is Amazon, who clearly has the ability to collect taxes on FBA product. They fought unsuccessfully to resist their own tax obligations, and pushed liability for tax, counterfeit product, and other issues to an army of third parties. They get to benefit by pushing phoney “third party sales” that they fulfill to avoid customers paying tax.

c2h5oh 9y ago
Collecting the taxes from a seller perspective is a solved problem - 10 minutes of Amazon account setup. Knowing if you have to collect those taxes, remitting them according to 50 sets of rules, often contradictory.. is a whole different story
- astura 9y ago
  It's way more than 50 sets of rules considering in some states (like NY) every single municipality has the ability to levy sales tax and those taxes can get complicated. For example, in some counties in NY county sales tax is charged on clothes and some counties it isn't but state tax is always charged on clothes. The rules are always changing too.

wang_li 9y ago

These issues of keeping track of stuff seem utterly trivial compared to what Amazon already does. I fail to see why this is a problem. I also fail to see why requiring businesses to follow the law is a bad thing. If it's too difficult, then talk to the legislators, don't just ignore the rules and regulations in place.

anonymous5133 9y ago
The reason they complain so much is because it just ads extra cost to them because of audits.
Jemmeh 9y ago
Imagine having to hold a seller's license in every state just to sell on eBay. A lot of people who sell on Amazon are also just 1 person businesses. It's a lot of extra paperwork, time, and cost for one person.
- c2h5oh 9y ago
  Even with 50 people it would still be a significant burden

anonymous5133 9y ago

I work in sales tax law and my theory is that the states will agree that it does not create nexus because the seller is not DELIBERATELY deciding where the product is being stored. In other words, it is impossible for the seller to even know which state they have nexus with.

robryan 9y ago
Amazon provide reporting which allows you to work out which states you have stock in. It is by no means straightforward but certainly can be done.
- tbyehl 9y ago
  My understanding is FBA inventory is fungible, so how would that work when Amazon fulfills an order from inventory that another seller warehoused?
  - robryan 9y ago
    As I understand it California for example would claim you have a nexus once any stock at all has been moved into an Amazon warehouse in their state. In that case all you would need to see is that Amazon has moved some of your stock into CA and then you would have a nexus and owe sales tax on any sales to customers in CA that your business does, regardless of where that stock comes from. To clear yourself of this nexus requirement for CA you would need to have had no stock stored there for a 6 month period. Obviously whether Amazon internally transporting one unit of your stock to CA for a few days constitutes a "substantial presence" is an untested legal question.

nkurz 9y ago

My impression (as a failed American businessperson who aimed for full legal compliance) is that successful businesspeople (at least in America) tend to accept that full legal compliance is impossible and instead worry only about the risk of noncompliance. As such, I think the much more common approach is to ignore even the clear local requirements until there is a demonstrated downside to doing so. Proactively worrying about compliance on the edge cases where no one is currently losing expensive losing lawsuits is viewed as somewhere between insane and suicidal. Are you perhaps from a more traditional country (or part of the US) where obeying the law still has a strong moral component?

c2h5oh 9y ago
> successful businesspeople (at least in America) tend to accept that full legal compliance is impossible and instead worry only about the risk of noncompliance That's because it's cheaper to settle than to be compliant as a result of prosecutors willing to settle for a fraction of what would otherwise be due, but avoiding a long trial. If government is not involved businesses often settle for more than would otherwise be due, to avoid a long and costly trial. Curious.. Anyway, in most civilised world the opposite is true. Non-compliance can be VERY costly. Going back to your question: I've run my first businesses in EU and I still have EU mindset. I'd rather have the piece of mind knowing that I'm compliant. And as much as it's going to sound weird in the light of Apple tax "optimisation" I can afford to pay my taxes, even if I don't live in US and don't benefit from them in any way and know most of them are going to be wasted.
- nkurz 9y ago
  That's because it's cheaper to settle than to be compliant as a result of prosecutors willing to settle for a fraction of what would otherwise be due That's likely true, although I think the dominant factor is probably the laxity of enforcement. That is, even if the penalties far exceeded the cost of compliance, if your chances of being caught are small enough, the economics (if not the morality) favor noncompliance. There is also the problem that attempting to be compliant can call attention to your noncompliance, thus perversely increasing that chances that you will be penalized. Anyway, in most civilised world the opposite is true. Non-compliance can be VERY costly. In my mind what is worse about the current US system is that once one accepts the existence of contradictory regulatory regimes combined with lax selective enforcement, most of leverage that would keep the system sane is lost. If the penalties are severe and regularly enforced, there is a much stronger feedback to make full compliance efficient, or at least possible. I'd rather have the piece of mind knowing that I'm compliant. While it may provide peace of mind, realize that there is almost no way to know all the rules, and you are almost definitely noncompliant with regard to some of those you do not know. There are likely agencies that believe they have jurisdiction over you that you've never even heard of. In my case of running a vegan frozen dessert business in California, while my research had revealed that the California Dairy Board reserved the right to regulate non-dairy frozen desserts (under the theory that a consumer might be confused into thinking that they were a dairy product) I was surprised when the federal Food and Drug Administration found me noncompliant for failing to properly register under the theory that since we had purchased some of our ingredients from another state (cocoa powder) we were engaged in interstate commerce and thus subject to their regulatory burden. While we ended up not paying any fines, and while the agents involved were polite and respectful, there were several painful days wasted on record searches and interviews with all of our key employees.

thescriptkiddie 9y ago

This is a pretty good argument for VAT over sales tax.