Maine will start collecting standard sales tax from Amazon in April. I honestly think this is mostly fair, and states should either A. Require all retailers to charge tax or B. Abolish sales tax entirely like NH did.
My question is, most other online retailers, are not included in this. Only Amazon, and any online retailer with physical stores in Maine.
If I were to buy something from Newegg instead of Amazon, I would be charged zero tax.
It’s because state sales tax follows state rules. Businesses that operate in a given state are required to collect from consumers on behalf of the state and remit to the state in order to do business in the state. A business that has no physical presence in a given state can’t be required to collect on behalf of that state. Having a presence in the state is called having a nexus.
Previously, Amazon had an extensive affiliate program. Affiliates of Amazon could sell their goods through the Amazon site after meeting various conditions, Amazon would take a cut, and the affiliates wouldn’t have to spend time and effort setting up their own storefront. Certain states started construing these affiliate programs sufficient to create a nexus and thus creating a requirement that Amazon collect and remit sales tax. As a result, in 2013 Amazon terminated its affiliate program with all Maine affiliate retailers.
As Amazon brings a lot of business to a state by setting up distribution centers, etc. - they can extract concessions on some tax related items such as collecting sales tax. In other cases, states enact laws specifically targeting Amazon.
What Bone said about the “nexus.”
That doesn’t mean that you wouldn’t owe any tax.
It’s worth noting that, in many (most?) states, you are still legally required to pay sales tax even if the retailer doesn’t collect it at the time of sale.
Here in California, for example. If a Californian orders an item from a retailer that doesn’t have any physical presence in California, they won’t be charged any tax on the transaction. But they are legally required to pay the tax, and California state tax returns have instructions and forms for calculating and paying your “use tax” when you file your return.
Even if an online retailer does not automatically assess sales tax, the onus is still on the purchaser to pay the tax, normally at this stage referred to a use tax. The mechanism to pay this is typically part of your state income tax form, for example line 91 in the California 540. However, this is normally difficult to enforce, and most people have typically gotten away with ignoring it, and if asked could claim that they don’t buy things online. Now some states are cracking down and more strongly enforcing the use tax. California is one of these, and their Franchise Tax Board makes the IRS look cuddly.
They can’t.
States do not have the legal authority to force retailers that have no physical presence in their state to collect tax for them. That’s why many online retailers only collect sales tax in some states.
Although it makes for an unequal situation, taxwise, this is probably a good thing. Can you imagine trying to start a business and having to abide by all the regulations of 50 different states just because you shipped product to customers in them?
Amazon does not have a physical presence in Maine.
As others have pointed out, you are charged the same sales tax regardless of whether you buy something from Newegg or Amazon or your corner store. The difference is who collects the tax. If a store is physically located in a state then the state can require the store to collect the sales tax. If the store isn’t located in the state then you’re supposed to send in the sales tax you owe yourself.
They don’t now because of the law. But they did. Amazon Associates were all over the country, including Maine. A bookstore in Portland, for example, might have been selling books online through Amazon’s marketplace. The government of Maine decided that if products from Maine were being sold through Amazon then Amazon could collect Maine state tax as part of the transaction. Amazon didn’t like this idea so it ended its association with any sellers who were located in Maine.
New Hampshire did not abolish sales tax: it has never had it to get rid of. Or actually, it’s more complicated than that because we do have a sales tax, but only on meals. (it’s 9%)
Oregon has no sales tax … buy from us !!!
New Hampshire: Live Free or Dine!
Here’s my experience and opinion as someone running an online shop. When I launched my shop I decided to be a Good Online Citizen and collect/remit tax in all the states that I have Nexus in.
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First, “nexus” has a different definition for each state. Some define it as the origin of the transaction, i.e. where your shop is. Others define it as where the shopper is. Some of the origin-definition states count only your headquarters, some count your warehouses, others even count dropship warehouses. (Dropship is when you send orders to your supplier and they ship directly to your customer for you.)
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As someone else mentioned, sales tax is a state and local thing. I found that in order to be a Good Online Citizen, I had to research and learn the sales and use tax laws for every state in the union (so that I didn’t miss out the destination nexus states). From there I had to also check local sales and tax laws. I didn’t actually do that much work; I only checked my state and those of my dropship suppliers. And I discovered that:
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Some states make you file one tax remittance/report that includes the state and all local taxes. Others make you file a separate report for each locality and the state. So for example, if you collected tax for three counties and the state, you’d have to send four reports.
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All of the states I researched still have their laws set up with a complete focus on brick and mortar stores so they were extremely unclear about what out of state businesses should do. For example, when registering in one state to collect/remit taxes, there was no easy way to let them know my business was not in that state. The address form assumed their state and I couldn’t pick another one.
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And the registering process… most of the states I tried to register in made it very hard for me to do so. It’s like they didn’t want my money. One state required me to register first with the state secretary (including a $50 deposit, cashiers check ONLY, submitted by snail mail), before I could then register with the state tax board to collect/remit sales tax (which was another small fee).
BTW, I also tried to find a low-cost accountant that was conversant in all of this stuff, namely multi-state sales and use tax law, and couldn’t find one. Even accountants don’t quite know what to do with this yet. I suspect it’s because you need an accountant and attorney team in order to pore through all of the tax law in each state. That doesn’t come cheap!
And subject to change without notice to anyone outside the jurisdiction (and often to anyone in the jurisdiction, even.)
Sales tax is a quagmire. The only way it didn’t throttle e-commerce in its cradle was that e-commerce didn’t pay it one bit of attention, for as long as it could.
Indeed. The states and counties helped at that, since neither the non-/low-taxing states nor the states with higher sales/use taxes nor the counties that piggyback on the state rate saw enough advantage to themselves to settle quickly on a compact for a uniform e-tax, that for the ones would mean a tax increase and for the others would mean a cut that the bricks+mortar merchants would then demand for themselves.
Amazon has gradually increased the number of states from which it collects sales tax – next month it will add HI, ID and NM as well – from what I read it doesn’t look as if Maine specifically legislated for Amazon. What’s in it for Amazon is being able to again integrate local-based suppliers into their fulfillment system.
Which means that Maine can’t force Amazon to collect sales taxes.
Amazon can voluntarily collect sales taxes from customers in Maine.
Reasons why they might choose to do so are left as an exercise to the reader.
I do some sales in CA. CA requires me to remit sales tax to the state for sales that are delivered to in state addresses. The process is incredibly tedious. Each county may have their own additional sales tax levied on top of the state rate, and this can change over time. I do have data on delivery addresses however there is no way to join those locations to the county data since the Board of Equalization doesn’t provide lookup tables. Even then, if I were able to determine all the different rates by county, I’d have to manually input the amount of sales one by one - no way to upload the data.
It’s incredibly inconvenient - I couldn’t imagine having to do that for all 50 states I ship to.
I find these “destination nexus” states interesting. My understanding is that if you have a chance of delivering goods to a customer in that state, then you need to collect/remit the tax for those sales to that state. But you have to register first, which means you need to know in advance that you’ll have sales in that state. For a new business like me, that means predicting the future by rolling dice because I had no prior data to base a forecast on. But if you don’t register, how do they know? I don’t think they have any way of knowing that unregistered businesses are “operating” in their state.
From what I’ve read about the sales tax streamlining effort, this continues to be a quagmire because of politics. State and local governments in many areas don’t want to work together to establish the same tax rates, laws or handling. Every now and then I take a look at http://www.streamlinedsalestax.org/ but as best I can tell all they’ve accomplished is to form lots of committees and talked a lot. There’s no information there that I can find to actually help small businesses handle sales tax the way we’re “supposed to”.
Interesting reading:
Tax Foundation article stating in 2014 that there are nearly 10,000 different sales tax jurisdictions in the US, when considering locality (state and local, including region/county/municipal) and taxable good being transacted (what’s being bought – food, services, etc.)
Congressional Research Service report (PDF) from 2013 describing the conditions of sales tax, including some of the factors that are known to affect it.
My conclusion from these: If you’re a remote seller transacting into one of the more complicated states (like Texas’ 1500+ distinct tax rate jurisdictions), you have literally no way to be sure you 're levying the correct rate, or whether you’ll be able to render it to the correct authorities when it comes time to forward the tax proceeds. I’m sure there’s been some moves to simplify things, but if it remains anything like the reported state, it’s simply impossible to guarantee compliance.
Are you in California? Because my understanding of the “nexus” rule is different from this. It is NOT simply for anyone who delivers to a California address; it is for businesses that have some sort of physical plant or representatives in the state.
Here is the California Board of Equalization definition of a business nexus:
So if you run a business out of your house or shop in Louisiana or New York or Minnesota or wherever, and you take orders over the internet, and ship those orders to California buyers using the postal service or a courier company, then it seems to me that you do NOT have a California nexus, and are not required to collect sales tax.
As noted above, your understanding is incorrect, at least for California. I sometimes buy stuff from out-of-state places like B&H Photography in New York, and they never charge sales tax when they ship items to me in California. I am required to take care of that myself when i fill out my state income tax return.
Yes - my bad for not specifying that. I want to follow the rules and it’s a pain in the ass - if small retailers had to keep track of all the different states they ship to it would be very difficult. This means that a lot of purchasers end up not paying sales and use tax on items purchased out of state.