State Net Capitol Journal – May 12, 2014; Amazon Sales Suffer From Sales Taxes

State Net Capitol Journal – May 12, 2014; Amazon Sales Suffer From Sales Taxes

Budget & Taxes

AMAZON SALES SUFFER FROM STATE TAXES: Last year began collecting sales taxes on purchases by Tennessee residents because the Internet retailer operates distribution facilities in the state, including warehouses in Chattanooga and Charleston. The "Amazon tax" has been a good thing for the state, with economists projecting it could generate $30 million a year in extra revenue.

But the tax hasn't been such a good thing for Amazon. The 9.25 percent that has been added to Amazon purchases by Tennessee shoppers has sent many of them to other merchants that are not subject to state and local taxes.

"I very rarely shop at Amazon anymore, whereas in the past I used it quite frequently, if not weekly," said Adam Smith, a senior marketing publications specialist at Mueller Water Products in Chattanooga. "No taxes plus free shipping [on most items] is what led me to Amazon. Now that I have to pay taxes, I choose to look elsewhere."

Smith and his state of residence are not alone. A recent study by researchers at Ohio State University found that the "Amazon tax" has reduced the company's overall sales 9.5 percent in five states that began collecting taxes on Amazon purchases between 2012 and 2013: California, New Jersey, Pennsylvania, Texas and Virginia. For bigger-ticket purchases — those totaling $300 or more - Amazon's sales have plummeted 23.8 percent in those states.

"Households substitute Amazon with other retailers, either online retailers who are exempt from collecting the sales tax or in-state retailers [online and brick-and-mortar]," Ohio State doctoral student Brian Baugh wrote in the 39-page study.

The study found, in fact, that sales of big-ticket items rose 6.5 percent at local brick-and-mortar stores and shot up 60 percent at online merchants that aren't required to collect sales taxes on their sales.

The news isn't all bad for Amazon, however. The company still managed to grow sales 20 percent in the first quarter of this year due to the success of its Amazon Marketplace, which allows third-party sellers to list their goods on — and even outsource billing, warehousing and delivery to — Amazon. Because such items aren't technically sold by Amazon, they aren't subject to local and sales taxes outside the state where the third-party retailer is located.

Dr. William Fox, director of economic and business research at the University of Tennessee, thinks that's an inequity Congress should address.

"From the beginning, we have argued that this is not about getting a small number of big firms collecting the tax," he said. "What we need is to broadly tax retail sales in the same way in every state."

Legislation currently before Congress, the Marketplace Fairness Act, would allow each state to collect sales taxes on purchases from out-of-state retailers, whether they operate in the state or not. But even that measure, in its current form, wouldn't capture all online sales because smaller merchants would be exempt.

States still stand to gain quite a bit from the act, however. The $30 million Tennessee expects to collect from taxing Amazon, for instance, is only a fraction of the $400 million to $600 million in sales tax revenue it would potentially take in if all out-of-state merchants were subject to its sales tax.

But Tennessee Sen. Randy McNally (R), chairman of the Senate Finance Committee, would prefer that all retailers collect sales tax so the playing field is level.

"Unfortunately, we disadvantage those businesses that operate in our state and help our communities by paying franchise and excise taxes to the state and wages to local workers," he said. (TIMES FREE PRESS)

TOLL-ROAD SCARE IN MI: A bill currently before the Michigan House, HB 4925, part of a package of bills aimed at raising an extra $500 million a year to repair the state's crumbling transportation infrastructure, includes a provision providing for "the charging and collection of user fees."

Michigan has no toll roads, which are common in the neighboring states of Illinois and Ohio, as well as 27 other states. But James Walker of the National Motorists Association, which opposes toll roads, testified before the U.S. House Transportation and Infrastructure Committee this month that the user-fee provision of HB 4925 "opens up an entirely new area of taxation...without legislative oversight."

"Michigan does not need and should not have toll roads that the Legislature has not approved in advance on a case-by-case basis," Walker said.

But although Rep. Marilyn Lane (D), the bill's lead sponsor, said toll roads "at major crossings" such as Michigan's borders with Canada and neighboring states ought to be discussed, she said she had no plan to push for them, and toll revenues were not part of the state's $500-million revenue target.

"People tend to go the most suspicious" of conclusions, she said, adding that a federal waiver would be needed to initiate a toll on any Michigan road. (DETROIT FREE PRESS, STATE NET)

CO FLOOD RELIEF STIRS UP DISPUTE OVER SUPERSTORM SANDY AID: At the end of last month, the U.S. Department of Housing and Urban Development announced its approval of a $62.8 million aid package for the victims of last year's devastating floods in Colorado. That news followed reports that HUD was considering devoting the remaining few billions of the $16 billion in disaster relief Congress appropriated in 2013 mainly for victims of Hurricane Sandy to a national competition for disaster resiliency projects.

Democratic U.S. Sens. Mark Udall and Michael Bennet of Colorado maintain the federal Disaster Relief Appropriations Act of 2013 was never meant to help the victims of Sandy exclusively.

"We're asking that HUD continue to adhere to the statute and continue to provide assistance judiciously, paying rigorous attention to the unmet needs of the most severely distressed communities," the senators said in a joint statement.

The act, in fact, states that the $16 billion "Community Development Fund" was intended for relief, recovery and restoration expenses resulting from "Hurricane Sandy and other eligible events in calendar years 2011, 2012, and 2013."

But U.S. Sen. Charles Schumer (D-New York) contends Sandy victims in New York and New Jersey, which took the brunt of the 2012 storm, should be the first priority.

"We all know that Sandy victims throughout New York and New Jersey are still getting back on their feet and making repairs to their homes," he said in a statement. "And I will fight for them to be the number one priority for remaining housing aid, as has always been intended, before a single dollar is put up for grabs in a national resiliency competition."

The HUD decision on the matter is expected in the spring. (DENVER POST)

BUDGETS IN BRIEF: A report from the CALIFORNIA Legislative Analyst's Office says about $200 billion of the state's key liabilities, which include debt and deferred payments, have not been addressed by the state and require legislative attention. The California State Teachers' Retirement System (CalSTRS) pension program is expected to run out of money in the next few decades, for example (CALIFORNIA LEGISLATIVE ANALYST'S OFFICE). • MISSOURI's General Assembly voted to override Gov. Jay Nixon's (D) veto of a bill reducing the state's top income tax rate from 6 percent to 5.5 percent. The governor said SB 509 would gut funding for schools (ST LOUIS POST-DISPATCH, STATE [COLUMBIA], NEWS-LEADER [SPRINGFIELD], STATE NET). • NEW JERSEY Gov. Chris Christie (R) proposed a tax on e-cigarettes last week to close a new $807 million hole in the state's budget for the fiscal year that begins July 1 (BLOOMBERG). • MISSISSIPPI Gov. Phil Bryant (R) called lawmakers into special session last week to consider relief for last month's tornadoes. Bryant wants lawmakers to authorize the Mississippi Emergency Management Agency to access up to $20 million (CLARION-LEDGER [JACKSON]). • Plunging tax collections in CONNECTICUT have opened up a nearly $300-million hole in the state's budget for next year (CONNECTICUT MIRROR). • April tax collections were $92 million below projections in KANSAS (TOPEKA CAPITAL-JOURNAL).

- Compiled by KOREY CLARK

The above article is provided by the State Net Capitol Journal. State Net is the nation's leading source of state legislative and regulatory content for all states within the United States. State Net daily monitors every bill in all 50 states, the District of Columbia and the United States Congress - as well as every state agency regulation. Virtually all of the information about individual bills and their progress through legislatures is online within 24 hours of public availability.

If you are a subscriber, you can access State Net Bill Tracking, State Net Full Text of Bills, or State Net Regulatory Text. If you are interested in learning more about State Net, contact us.

For insightful analysis and practical guidance on state and local taxation, explore Bender's State Taxation: Principles and Practice

Discover the features and benefits of LexisNexis® Tax Center.

For quality Tax & Accounting research resources, visit the LexisNexis® Store.

To subscribe to the Capitol Journal and access archived issues go to the State Net Capitol Journal.

For more information about LexisNexis products and solutions connect with us through our corporate site