Trump’s Amazon Tweet Comes at Eventful Time for State-Local Taxes

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By Che Odom and Ryan Prete

President Donald Trump blasted Amazon.com Inc., again, for paying “little or no taxes to state & local governments” in a March 29 Tweet.

The president’s jab comes as the solicitor general, who represents the federal government before the U.S. Supreme Court, is siding with South Dakota’s attempt to overturn the high court’s 1992 decision barring states from taxing out-of-state sellers who lack an in-state physical presence.

Trump’s criticism also comes as Amazon looks for a location for its second headquarters, asking cities and states around the country to pitch tax incentives as bait for its promised 50,000 jobs and $5 billion in investment.

Trump has a long history of animosity toward Amazon Chief Executive Officer Jeff Bezos, who also owns the Washington Post, and the president previously has aired these complaints. Last summer Trump referred to the “AmazonWashingtonPost” as the “guardian of Amazon not paying internet taxes (which they should.)”

Amazon does in fact collect sales tax on its direct sales in every state that has one, but it may not be collecting local, municipal sales taxes. The e-commerce behemoth largely doesn’t collect tax on third-party sales facilitated through its marketplace platform, but has agreed to do so in Washington state and Pennsylvania.

Amazon Taxes

The president latest attack said, in full: “I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”

Tax policies need to catch up to Amazon, and President Trump would support tax changes aimed at leveling the playing field, which now favors the online retailer, Trump’s spokesman Raj Shah said on Fox News.

Amazon has an advantage over brick-and-mortar stores, Shah said. “Right now, there is no internet sales tax, and, as a result, companies like Amazon can buy and sell goods without having to pay basic retail taxes.”

Though Amazon has reached agreements with states to collect and remit sales and use taxes, Amazon’s agreements don’t apply to third-party merchants selling goods through its website, and many of those transactions remain untaxed. Such sales make up about half of the company’s volume. Amazon has said it’s up to the sellers to collect any taxes, and many don’t.

Executive Push for Digital Tax

Trump’s tweet is the latest signal that the White House supports efforts to undo a 26-year-old precedent in Quill Corp v. North Dakota, which bars states from imposing sales tax collection obligations on vendors lacking an in-state physical presence.

U.S. Solicitor General Noel Francisco filed a March 19 motion requesting the U.S. receive 10 minutes to argue in favor of South Dakota in South Dakota v. Wayfair—a case that directly challenges Quill. Oral arguments are set for April 17 at 10 a.m.

Rep. Kristi Noem (R-S.D.), a fervent supporter of congressional action on digital taxation and the sponsor of the Remote Transactions Parity Act of 2017 (H.R. 2193) (RTPA)—which seeks to undo Quill—previously lauded the Solicitor General’s submission.

“Rep. Noem is pleased to have the president’s support of a legislative solution to this issue,” Noem’s office told Bloomberg Tax.

Treasury Secretary Steven Mnuchin has twice spoken for the administration on the issue, suggesting e-retailers should collect and remit sales and use tax on all purchases. On Feb. 15, speaking at a hearing before the House Ways and Means Committee, Mnuchin said he had spoken personally with Trump about online taxation, and that the president “does feel strongly” that sales tax should be applied to internet purchases.

Paying Less Than Others

Meanwhile, Amazon may not be paying its share of local sales taxes. A report released March 26 by the left-leaning Institute on Taxation and Economic Policy said Amazon either doesn’t collect and remit local sales tax or is charging a lower sales tax rate than traditional retailers in seven states: Alabama, Alaska, Idaho, Iowa, Mississippi, New Mexico, and Pennsylvania.

The reason for this varies across states, including Amazon applying interstate “use taxes,” which in some cases don’t include the local tax rate, the report said. In other cases, state law requires sales tax to be assessed based on the location of the seller rather than the buyer.

This tax collection problem presents two challenges for states and local jurisdictions. One, by not universally collecting sales tax, Amazon and other e-retailers are maintaining an unfair advantage over traditional retailers, according to ITEP.

Two, localities that aren’t able to collect sales tax from online retailers may be at a disadvantage in the near future as Congress and the U.S. Supreme Court are considering expanding state and local sales tax collection authority, ITEP said.

“After decades of waiting, state and local governments might soon have the authority to collect sales taxes on online purchases made by their residents,” Carl Davis, ITEP research director and author of the report, said in a statement. “But some cities aren’t going to see a dime in new revenue unless state or local laws are updated.”

With assistance from Kasia Klimasinska (Bloomberg).

To contact the reporters on this story: Che Odom in Washington at codom@bloombergtax.com and Ryan Prete in Washington at rprete@bloombergtax.com (Bloomberg Tax)

To contact the editors responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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