The online giant Amazon.com will begin collecting sales tax on purchases made by New Jersey residents in exchange for state help in building Amazon facilities. Amazon's collection of sales tax begins on July 1, 2013, or if earlier, the effective date of federal legislation that would give states the power to enforce collection of sales tax from online sales.
The agreement is one of many. Texas, Nevada, and Indiana struck similar deals with Amazon earlier this year. And Tennessee has codified its Amazon agreement, which gives Amazon a two-year moratorium in the collection of sales tax in exchange for establishing an in-state distribution center.
But the time frame for negotiating these distribution center deals may be short lived. "Whatever deal they can cut in the interim, wherever they can cut those deals that perpetuate their ability not [to] collect, whether its for a year in one state, or two . . . or three years in other states; . . . [Amazon is] incredibly lucky that states agreed to do that," said Joe Huddleston, Executive Director for the Multistate Tax Commission in Washington, D.C. at Bloomberg BNA's State Tax Advisory Board Roundtable in December.
The agreements come as part of a tide of legislation by states such as Arkansas, Connecticut, Illinois, Vermont, and Virginia, all requiring online retailers to collect sales tax, although Illinois' law has been recently struck down as violating the Constitution and federal rules governing electronic commerce. Performance Marketing Association Inc. v. Hamer, Ill. Cir. Ct., No. 2011 CH 2633, 4/25/12.
In other developments...
When consumers do not pay sales tax on internet transactions, they are liable for use tax. A University of Tennessee study estimates state and local governments nationwide will lose at least $11.4 billion in potential use tax revenues from e-commerce sales for tax year 2012.
On April 19, the New York Attorney General filed suit against Sprint Nextel Corp., alleging it had failed to collect over $100 million in New York State and local sales tax by improperly characterizing payments from its customers for wireless voice services. People of the State of New York and State of New York ex rel. Empire State Ventures, LLC v. Sprint Nextel Corp. et al., Index No. 103917-2011 (superseding complaint filed April 19, 2012). In addition to the tax, the action seeks treble damages and penalties. This is the first state tax whistleblower action made public under New York's False Claims Act. For more information see MoFo New York Tax Insights Volume 3, Issue 6 June 2012.
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