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Archive for the ‘Online Sales Taxes’ Category

February 2011 Junkie Winner: Amazon

Posted in Ecommerce, Junkie Award Winner, Online Sales Taxes, Online Shopping, tagged , , , , , on March 22, 2011 | 1 Comment »

February 2011 Junkie Award Winner: AmazonOur February 2011 Junkie award recipient isn’t a small up and coming operation like some of our previous winners have been.  In fact, you know the name very well—Amazon.com has been a rock in the e-commerce industry for about as long as online shopping has been around.

But neither Amazon’s pedigree nor its reputation is the reason why we’re recognizing the company with the latest installment of the Junkie awards.

Our regular readers know how important the internet taxation issue is to us:  the proliferation of new legislation in an increasing number of states seeking to tax online purchases to help narrow their budget deficits has been staggering over the course of the last 12-18 months.  And at times it has seemed like the e-commerce community has been helpless to defend itself against what can be viewed as burdensome and maybe even unfair over-regulation.

That’s where Amazon comes in.

The company’s size and reach has often made it a scapegoat for online tax matters but it has consistently responded to being in the crosshairs of many state-level legislators with an effective counter-argument and overall strategy.  And during the month of February, Amazon scored one very big internet tax victory that will have ramifications for every other retailer out there as the online tax battle continues to evolve.

The development played out in North Carolina, where the online tax battle between the state’s Department of Revenue and Amazon was white-hot throughout most of 2010.  A major turning point came in early February though when a settlement, which the American Civil Liberties Union helped facilitate, was reached to scale back the state’s demands for personal customer information as part of its online tax collection efforts.

North Carolina had initially demanded that Amazon (and by extension, other retailers) include sensitive customer information about the specifics of online purchases to help it collect back taxes.  Amazon hedged, arguing that passing along the details of customer purchases, particularly of potentially controversial books and/or movies, was an invasion of their Constitutional right to privacy.   A lawsuit against North Carolina ensued and the U.S. District Court in Seattle sided with Amazon in a ruling on the lawsuit last October.

But make no mistake: it was the February settlement that means more.  It ensures that not just Amazon, but ANY retailer that North Carolina chooses to go after in the future for online taxes can promise their customers that their privacy will continue to be protected no matter what.

And that’s important.  Certain states’ online tax proposals have often had an Orwellian feel to them, one that would make even the most hardened online shopper think twice before purchasing what some may consider “controversial” materials for fear of having it come to light later.  At least in North Carolina now, the rules are much more clearly defined.  It’s our hope that the same protections will be afforded to online shoppers in other states as well.

Amazon, in our opinion, hasn’t gotten enough credit as this issue has grown.  They’re out front taking most of the flack and fighting back not just for their own preservation but for that of every other retailer who sells online as well.  For leading the e-commerce community’s charge against unfair and probing regulation and keeping its’ customers’ rights a priority, we’re proud to name Amazon our February 2011 Junkie Winner.

Got feedback?  Leave us a comment!

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Amazon Throws Down Another Gauntlet over Internet Taxes

Posted in Online Sales Taxes, tagged , , , , on March 4, 2011 | 3 Comments »

Fresh off of severing ties with their affiliates in Texas less than a month ago, Amazon told affiliates in California this week that they will suffer the same fate if the state follows through with a handful of online sales tax bills currently pending in Sacramento.

At issue are four pieces of legislation up for consideration in the California Legislature that mirror many of the online sales tax laws we’ve seen elsewhere in the country. California is specifically targeting out-of-state retailers that don’t have a physical presence within the state’s borders for online tax collection.

The pending bills would designate web site affiliates as constituting a physical presence, thus requiring e-retailers with affiliate programs to collect sales tax.

Amazon though, echoing sentiments it has offered up in other parts of the country ever since states started initiating online tax legislation, contends that passage of the bills would construct ‘Trojan horses’ resulting in unfair, and even unconstitutional, regulation.

“These bills would provide no new tax revenue collected by Amazon or others who sever their relationships with California-based advertisers,” Paul Misener, Amazon vice president of global public policy, stated in a letter to California state Senator George Runner.  “California consumers would still be able to purchase online at http://www.amazon.com from Amazon’s retail business, so these bills would only deny California-based organizations and individuals the advertising fees they currently receive from out-of-state retailers and, ironically, California’s general fund could suffer a net loss in revenue as affiliates pay less income tax or move out of the state.”

There are more than 10,000 California-based participants in Amazon’s affiliate program that would be affected if the company decides to pull the plug on the program in the state.

Runner, who also sits on the state’s Board of Equalization that oversees tax collection, predicts that such a move would cut at least 50 percent of the revenue that California anticipates collecting if the pending legislation is passed. California-based affiliates, both Amazon’s and others, paid an estimated $124 million in state income taxes alone last year.

Where the showdown between the web’s top retailer and California goes from here is up for debate.  But Amazon’s  biggest bargaining chip now is the reality that it has followed through on threats to pull out of other states in the past, namely North Carolina, Rhode Island and Colorado, because of burdensome tax regulation.  And the company appears to have no qualms about repeating that move out West.

Got a comment or thought? Leave it below!

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Worst-case Texas Scenario Realized for Amazon

Posted in Online Sales Taxes, Uncategorized, tagged , , , , on February 14, 2011 | Leave a Comment »

We just reported on Amazon and the online sales tax issue in North Carolina on Friday but it appears that there’s another new development in one of e-commerce’s hottest topics now in Texas.

Following through on repeated threats that it has made in Texas (and elsewhere) during the dialogue over internet taxes, Amazon has announced that it is pulling out of the state altogether, closing a Dallas-based fulfillment center and scrapping plans to build more in the Lone Star State.

The action is the result of staring contest of sorts between the web giant and Texas over the latter’s proposed online sales tax policy, which Amazon is steadfastly refusing to give in to.   Texas claims that Amazon owes nearly $270 million in back sales taxes plus interests and penalties.

Amazon cited “the unfavorable regulatory climate” fostered by the Texas Comptroller’s office as the driving force behind shuttering the Dallas facility and ceasing any future fulfillment operations in the state.

“Closing this fulfillment center is clearly not our preferred outcome.  We were previously planning to build additional facilities and expand in Texas, bringing more than 1,000 new jobs and tens of millions of investment dollars to the state, and we regret the need to reverse course,”  said Amazon vice president of North American operations Dave Clark, in an internal memo to employees.  “Despite much hard work and the support of other Texas officials, we’ve been unable to come to a resolution with the Texas Comptroller’s office.”

Amazon has been at the forefront in a number of states that have either implemented, or are currently drafting, online sales tax legislation as a way to help close holes in their budgets.  All along, the company has maintained that it would simply cease affiliate relationships and other business operations in states that take up sweeping online tax codes rather than be held accountable for what it views as unfair and burdensome regulation.  This is the first tangible example yet, though, of Amazon making good on its claims.

For its part, the Texas comptroller’s office is sticking to its guns, arguing that its policy with regard to Amazon was simply part of a broader overall effort to make merchants accountable under the state’s tax laws.

“We regret losing any business in Texas, but our position hasn’t changed:  If you have a [physical] presence in the state of Texas, you are required to pay sales tax just like any other business that has a physical presence in Texas,” they said.

It would appear that Amazon is indeed serious about not doing business in states like Texas that are pushing for back online sales taxes.  We’ll have to wait and see if the company follows suit in other states and what this action in Texas could mean for those other states that are thinking about implementing similar tax laws this year.

In the meantime, we welcome your comments!

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Amazon Picks up Another Tax Win in North Carolina

Posted in Online Sales Taxes, tagged , , , on February 11, 2011 | Leave a Comment »

It’s getting intense out there on the internet taxation battlefield!

While more states across the country mull online sales taxes here in 2011, Amazon has scored a victory in its ongoing face-off with the state of North Carolina over its proposed internet tax with some help from the American Civil Liberties Union (ACLU).

Thanks to a signed agreement between the state and the ACLU, North Carolina will not require Amazon to provide sensitive customer information as part of its efforts to collect back sales taxes for online purchases from the web giant.

Those who have followed this story for awhile on Junkie and elsewhere know that the ACLU got involved over concerns that North Carolina’s online tax legislation was threatening the privacy and constitutional rights of Amazon’s shoppers.

Amazon actually filed a lawsuit against the North Carolina Department of Revenue arguing that the state’s measures for determining overdue online sales taxes went too far and threatened consumer privacy.  In October, a judge with the U.S. District Court in Seattle agreed, ruling that Amazon did not have to provide the state with information about customers that was personally identifiable as part of its online sales tax collection.

Now this new settlement, which was finalized last month, will extend the same rights to any and all state-retailers as well.

“This settlement is a great win for privacy,” the ACLU said.  “While the court’s ruling concerned only the specific request issued to Amazon, the settlement covers requests to all Internet retailers who sell books, movies, music,  and similar expressive materials.”

The settlement between the two parties clearly dictates that the state will not ask retailers for transaction information that could link customers with the specific titles of books or other media items that have been bought online. Any   requests that North Carolina makes of web retailers from this point forward will include the statement:

“This IDR (information document request) does not request the names, titles or other identifying information from which names and titles can be derived of the books, movies, music or other expressive items sold.”

The state’s revenue department maintains that it was never going after specific product information, instead only targeting enough information to help enforce its sales and use tax collections:

“This is about fairly collecting the tax that is due to the state of North Carolina and nothing more,” the NCDR said in a statement following the settlement.  “This settlement only makes our position more clear to Amazon and other retailers that the department has no interest in the titles of books, movies, music or other expressive items.”

This certainly isn’t the end of the online sales tax fight in North Carolina, but thanks to the ACLU, the lines of what a state can ask for as part of sales tax collection has gotten a bit clearer.  We’ll see if the ACLU follows suit in other states.

As always, leave us your thoughts and comments!

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Illinois Internet Tax Moves Closer to Reality

Posted in Online Sales Taxes, Uncategorized, tagged , , , on January 7, 2011 | 1 Comment »

Less than two weeks ago we reported on the new online sales tax amnesty program being rolled out in Illinois that was the first of its kind in the country.  Now there’s yet another big development in the Prairie State regarding the hot-button topic of internet taxation.

Lawmakers in the state’s General Assembly have approved a 6.25 percent tax on web purchases, which will be levied on goods bought through affiliates of online retailers that bring in a minimum of $10,000 a year in sales in the state.

The measure passed by an overwhelming 88-29-0 vote in the state House as an amendment to Illinois House Bill 3659, after having won approval from the Illinois Senate earlier this week.

Lawmakers now have 30 days to send the bill to Governor Pat Quinn, who can take up to 60 days to sign off on it.  The law would presumably go into effect on July 1 if approved by Quinn.

If enacted, it would make Illinois the latest in a growing list of U.S. states that are turning to online tax proposals to help close budget deficits.  Illinois’ law does differ from other such proposals a bit, in that it would technically tack on the 6.25 percent to certain online purchases as part of a ‘use’ tax.  Use taxes apply to the right to use items bought from catalogs and/or the Internet that generally don’t collect traditional sales taxes for a state.

Not surprisingly, the law’s proponents are touting it as a means of leveling the playing field for all retailers, online and off, in Illinois.

“The bill treats online merchants more like bricks-and-mortar merchants,”  said a spokesman for state Senate president John Cullerton. “The retailer would be responsible for collecting the tax.”

The bill only pertains to online retailers with active affiliates in the state, in line with a 1992 U.S. Supreme Court ruling dictating that only web retailers with a physical presence in a given state are required to actively collect state sales taxes.

What happens from here in Illinois is anyone’s guess, though it’s expected that the bill will be signed by Governor Quinn.  Retailers with affiliates in the state could repeat actions they’ve done in other states where similar affiliate-targeted legislation has passed, namely, cut the affiliates off altogether to avoid paying taxes.   Legal action on the part of such retailers could be a possibility too, as was the case in North Carolina with Amazon.

Regardless, we’ll keep tabs on the Illinois movement and fill you in when new details emerge.  As always, leave us your comments!

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Illinois Starts Consumer Amnesty Program for Online Taxes

Posted in Click Fraud, Online Sales Taxes, tagged , , , , on December 29, 2010 | Leave a Comment »

With the 2010 holiday shopping season now in the rear view mirror, a move by the state of Illinois has served as a reminder that one of the biggest issues facing the e-commerce industry—internet taxation—certainly isn’t going to disappear from the forefront in 2011.

The state has announced the formation of a new amnesty program for consumers who owe unpaid taxes on past Internet purchases.  It is believed to be the first such consumer-focused program ever launched by any state in the country but certainly may not be the last if it proves to be fruitful.

The program will go live officially on January 1st and run through October 15 of next year.

Under the terms of the amnesty offering, Illinois will waive all penalties and interest on payments that consumers make to the state to cover “use” taxes on purchases made between June of 2004 and this past December from internet retailers, catalog companies and any other merchants that did not collect sales taxes on those transactions.

Use taxes, which the Illinois program is focused on, are not often mentioned in the larger debate over internet taxation and most consumers are neither aware of them or pay them at all.   They’re typically levied by states like Illinois IN LIEU of traditional sales taxes and they get their name from the fact that individuals are expected to pay, in any given state, for the right to use products they buy from web and catalog merchants that do not collect sales taxes on purchases.

Though they go by a different moniker, use taxes still boil down to a form of internet taxation much like we’ve seen in places like Colorado and North Carolina.  While the state argues that the Illinois’ Use Tax Amnesty program is an effort to raise awareness of consumers’ use-tax responsibility, the broader goal of the program is to recoup some of the estimated $150 million in uncollected tax revenue out there every year.

Several other states that take part in the Streamlined Sales Tax Project, which we have chronicled a few times before, have previously offered amnesty programs to retailers for uncollected sales taxes in the past.  Illinois, however, is the first state to target consumers with an amnesty program of this type.

It’s not the lone step the state is taking to address use/sales tax awareness.  Taking a cue from several other states, Illinois is also going to require taxpayers, beginning this year, to estimate their own use tax liability on their state tax returns.   State residents will have a choice when filing returns this year to either use a template worksheet to roughly calculate their liability or choose to pay roughly $3 for every $10,000 of adjusted gross income.

It’s been fairly quiet on the internet taxation front lately but this news out of Illinois is sure to get the debate fired up once again, particularly if we see more states rolling out similar tax proposals in the New Year.

As always, we welcome your comments!

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Amazon Earns Victory in NC Online Tax Issue

Posted in General News / Technology, Online Sales Taxes, tagged , , , on October 27, 2010 | Leave a Comment »

We try not to make a habit of posting stories involving the same company and/or issue in one week, but we really have no choice in this case.  Even though yesterday we reported on the rather larger tax bill that the state of Texas has handed to Amazon for unpaid online sales taxes, we find Amazon and the entire internet taxation story at the top of our priority list again here today.

Following up on a number of posts we have ran this year on the internet tax fight going on down in North Carolina, a federal judge has ruled that the e-tailer is not required to turn over more information than it has already provided to the state’s Department of Revenue as part of North Carolina’s efforts to collect back sales taxes on transactions involving state residents.

In other words, that’s a big win for Amazon and a major blow to states around the country that are either actively pursuing internet tax legislation and procedures, or are considering such moves in the future to close budget deficits.

Judge Marsha J. Pechman handed down the ruling in U.S. District Court in Seattle on Monday, primarily citing First Amendment rights (a cornerstone of Amazon’s argument in the first place).

“The First Amendment protects a buyer from having the expressive content of her purchase of books, music, and audiovisual materials disclosed to the government,” Pechman wrote in her decision.  “Citizens are entitled to receive information and ideas through books, films, and other expressive material anonymously.”

The judge also denied motions by the DoR to throw out Amazon’s complaint against the Department, which were filed earlier this year when it asked the e-tailer to provide even more personal customer information as part of its data collection efforts. The ruling dictates that Amazon’s release of order identification numbers and shipping addresses should have been enough for North Carolina, and that providing sensitive customer data such as names, addresses, phone numbers and emails would threaten Constitutional rights.

Still, Pechman did note though that her ruling does not mean the state cannot, at some point in the future, issue a new request for the names and addresses of the Amazon customers in question.  But she did make a point to say that the state could only go after such information if it was within those customers’ First Amendment rights and that the DoR must destroy any detailed information it already has on Amazon’s sales transactions.

Predictably, the Department of Revenue isn’t happy with the ruling and is reviewing it in more detail to determine if an appeal will follow.  As such, this is certainly not the end of the fight between the state and the web’s biggest merchants.

As always, leave us your thoughts and comments!

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Amazon Gets Socked with Huge Tax Bill

Posted in General News / Technology, Online Sales Taxes, tagged , , , , , on October 26, 2010 | Leave a Comment »

We’ll say this about the people in Texas. They don’t shy away from going after big companies when they feel like they’ve been slighted.  Early in September we told you about the state’s attorney general opening up an investigation into Google for possibly manipulating its own search results for a competitive advantage.

Now, Internet Retailer is reporting that the state of Texas has another tech giant in its crosshairs: Amazon, which once again finds itself at the center of a firestorm over online sales taxes.

Apparently, the Texas Comptroller’s office sent Amazon a bill back in August for a cool $269 million.  Let’s let that sink in for just a second: $269 MILLION.  The bill is for uncollected sales taxes on transactions made by Texas residents between December 2005 and December of last year, according to an Amazon filing with the Securities and Exchange Commission.

Now, our regular readers know we’ve spent plenty of time analyzing the internet taxation issue. But to find out that a single company is supposedly on the hook for $269 million in unpaid taxes to a single state is shocking even to us!

A spokesperson for the Comptroller says the bill came about as the result of a routine audit by that office of retailers and other such companies operating within the state, an audit that is specifically designed to determine whether companies have a physical presence in the state.  That physical presence issue, which has arisen time and time again in the online sales tax debate, determines whether or not the Comptroller’s office can collect sales taxes from a company.

There’s speculation that the audit arose in large part because of some reporting by the Dallas Morning News back in 2008 questioning why Amazon wasn’t collecting sales taxes even though it was operating a distribution in the Dallas suburb of Irving through an entity called Kydc LLC.   Of course, this wouldn’t be the first anyone’s heard of this.  Amazon has already come under attack for not collecting sales taxes in other states where it operates distribution centers, notably Pennsylvania, Virginia, Nevada and others.

Nevertheless, many tax experts agree that retailing and distribution centers are generally regarded as separate lines of business under U.S. law and that a retailer’s ownership and operation of a separate distribution facility does not, by itself, create the ‘nexus’ (aka physical presence) needed to levy sales taxes against that retailer.

So the question really becomes, is Texas making a power grab like so many states have before it? Or is Amazon in the wrong here?

The retailer has asked for a re-determination of the state’s findings, which makes the audit an ongoing affair.  Beyond that, the company hasn’t said much on the record about the matter except to claim that the assessment by Texas is without merit but that it will defend itself regardless. Amazon did admit  however, that an unfavorable resolution to this issue could “materially affect business.”  With a bill of $269 million potentially due, we’d say that’s a pretty accurate statement.

This thing is far from over.   When we hear more, we’ll let you know.  As always, leave us your thoughts and comments.

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Report Accuses Several Big E-commerce Names of Violating Consumer Privacy

Posted in Ecommerce, Online Sales Taxes, tagged , , , , , , on September 29, 2010 | Leave a Comment »

Our regular readers know by now that we put a lot of stock in consumer privacy and can be very critical of anyone who takes that privacy for granted.  Well rest assured, if the report that we’re covering in today’s post turns out to be valid, there’s could be serious fallout for some very big and well-known e-commerce names. (Bear with us though, because there’s more tech jargon to this story than what we usually do.)

The report in question is called “Token Attempt: The Misrepresentation of Website Privacy Policies through the Misuse of P3P Compact Policy Tokens,” and from what we can tell, it was co-authored by an associate professor at Carnegie Mellon University.

The gist: customer privacy preferences are routinely being ignored by such e-commerce outlets as Amazon, Shopzilla and Bizrate, who are exploiting a loophole in Internet Explorer’s versions 6.0, 7.0 and 8.0 to track users’ browsing habits.

The report goes on further to say that numerous sites were found where the published privacy polices do not correspond to how those sites actually interact with Internet Explorer, particularly with regard to the placement of cookies based on user’s privacy preferences.

The sites in question are apparently using invalid three and four character tokens, which are code sequences that summarize privacy policies, to circumvent an Internet Explorer user’s privacy preferences.

Here’s where it gets a little complicated.

IE is the lone major web browser that reads privacy policies that conform to the Platform for Privacy Preferences (P3P) protocol, which is designed to standardize how preferences are communicated between browsers and web sites.  Under the protocol, a web browser should immediately be able to detect and understand a site’s privacy policy for cookies.  If a site’s privacy policy, which is communicated through a series of token codes, matches up to a web user’s own privacy setting, then cookies are permitted.  Cookies are rejected when a site’s cookie usages exceeds what the user’s privacy settings allow for.

The use of P3P protocol, which was developed in 2002 by the World Wide Web Consortium as an effort at self-regulation, is voluntary except for websites owned and operated by the U.S. government.

The study asserts that the manner in which IE interprets the token code is what enables sites to bypass privacy preferences.  Administrators can use invalid codes, or fewer codes than normally required, and IE will accept them.  The loophole itself results in codes that don’t correctly communicate a site’s privacy policies properly, which then get through IE’s default privacy preferences.

“The loophole is that Internet Explorer only looks for codes that are unsatisfactory,” says Lorrie Faith Cranor, the co-author of the report.

So what does this mean in practice?  One of the sites in question could, for example, recommend an item to a shopper based on a cookie placed by an ad network that recognized the shopper once looked at an advertisement for that product on another website.  The site could read the cookie and make an unwanted outreach or product recommendation as a result.

Cranor says that while the P3P protocol may be voluntary and hasn’t been adopted broadly by other browsers, not adhering or maliciously circumventing its rules sets a bad example for the entire industry.

Complicated, right? Leave us your thoughts and comments!

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Internet Sales Tax Debate Heats up on Capitol Hill

Posted in Merchant Tips, Online Sales Taxes, Online Shopping, tagged , , , , , , on July 30, 2010 | Leave a Comment »

Things are getting a bit heated on Capitol Hill and no, we’re not referring to the ongoing ethics investigation surrounding New York congressman Charlie Rangel.

Online sales taxes were at the forefront yesterday as members of Congress on both sides of the issue squared off to promote competing pieces of legislation—Rep. Bill Delahunt’s bill to implement a tax, and a new House of Representatives resolution introduced by Rep. Paul Hodes (D-NH) that opposes it.With two legislative sides now firmly established on the issue, it is the start of what could be a big battle that merchants and retailers across the country should be keeping a close eye.

The Hodes resolution already has bipartisan support from four representatives and essentially runs counter to Delahunt’s bill, The Main Street Fairness Act, which was introduced on July 1. As we outlined in our post at the time, Delahunt’s proposed legislation would empower states that abide by the Streamlined Sales and Use Tax Agreement to force online retailers to collect sales taxes from customers within that state whenever they make a purchase online.  Catalog retailers would also be forced to collect tax revenue under the bill.

While the resolution from Rep. Hodes does not reference or mention either Delahunt’s proposed law or the SST Agreement by name, there’s little doubt as to what its aim really is:

“…any federal legislation that would upset [the Internet’s] open and fair environment and impose new onerous and burdensome tax collecting schemes on hundreds of thousands of small online retailers would not only adversely impact thousands of jobs and reduce consumer choice, but would also effectively put an end to the robust e-commerce marketplace that consumers in the U.S. currently enjoy,” the resolution states.

It goes on to say, “Congress should not impose any new burdensome or unfair tax collecting requirementson small online businesses, which would ultimately hurt the economy and consumers in the U.S.”

Already NetChoice, an advocacy coalition of online merchants, consumers and related entities has come out in support of the Hodes resolution, claiming that adhering to any sales tax law for online purchases would likely cost small retailers up to 15 percent of the tax they’re actually collecting, ahefty figure to say the least in these tough economic times.

NetChoice also disputes an estimate given by the governing board of the SST, which claims $18.6 billion in online sales tax revenue could be collected if something like The Main Street Fairness Act was implemented.

We’ve had some great feedback from you on this issue over the past few weeks and we want it to continue.  Obviously we’re seeing battle lines being drawn in Congress over a proposed internet sales tax, and despite the fact that the bills in question are both authored by Democrats, we forsee it becoming a long and potentially messy fight in this election year.  But we want to hear from you…leave us a comment with your thoughts, opinions, etc.

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